Dear Readers,
The Ministry of National Economy published a Consultative Document on Regulatory Policy for the Draft New Tax Code for public discussion. The document outlines the main issues of the tax legislation, proposed solutions, and the potential impact of the reforms on the economy and social sphere.
The document identifies the following problems of the current tax legislation and possible ways to address them.
Tax / Topic |
Issues |
Proposed Solutions |
Corporate Income Tax |
Low flat corporate income tax rate and lack of differentiation by industry |
Differentiation of income tax rates: 25% - for the banking sector; 20% - general rate; 10% - for agricultural producers, financial leasing, social sphere. |
Value Added Tax |
Low VAT rate compared to other countries and low collection levels of this tax |
The tax rate at 12% and elimination of tax exemptions that negatively impact the state budget; Format-logical control during the completion of VAT reporting; Simplification of the VAT refund procedure through the application of digital solutions. |
Excise Taxes |
The need to harmonize excise rates on tobacco products within the EAU framework |
Gradual increase in excise taxes on tobacco products in accordance with the EAU Agreement |
Small and Medium Size Business |
Excessive variety of special tax regimes with different conditions and criteria, which complicates their application and tax administration |
Abolishment of rarely applied special tax regimes, merger of regimes with similar conditions, and revision of application criteria based on real practice |
Luxury Taxation |
Absence of taxation of luxury items |
Higher property tax rates if the total value of an individual’s assets exceeds 130 000 times the Monthly Index Factor; Multiplicative increase in tax rates for private yachts and airplanes Elevation of excise taxes on expensive types of alcoholic beverages and cigars |
Tax Incentives
|
Inconsistent approach to granting tax incentives |
Comprehensive approach for granting and monitoring the effectiveness of tax incentives; Obligatory reporting of all granted tax incentives on tax declarations for the efficiency analysis purposes; Reduction of tax incentives by at least 20%; Establishment of obligations for taxpayers benefiting from tax incentives; Setting clear objectives for the granted tax incentives with subsequent evaluation of the goals achievement. Extension of incentives only upon demonstrating their effectiveness; Cancellation of inefficient tax incentives |
The existing tax incentives do not fully facilitate the goal of reinvesting income into business development |
Tax and obligatory payments exemptions for local and foreign investors in new processing industry projects for the first three years; Income tax reduction/exemption for profits used in technological modernization and research; Choice for taxpayers to capitalize or deduct any repair expenses; Unified 25% maximum depreciation rate for fixed assets groups I and II |
|
Tax Administration |
The need for further optimization of the interaction between the tax authorities and taxpayers |
Transition to a service-based tax administration model; Implementation of pre-filled reporting and calculation of anticipated tax payments; Expansion of special mobile applications and adoption of new IT-administration solutions; 30% reduction in tax reporting; 20% decrease in the overall number of mandatory payments to the budget; Full digitization of tax control; Differentiated approach in applying methods and measures for enforcing tax liabilities |
Universal Filing Obligations of Individual Incomes |
Need to revise the approach to universal filing, due to increasing digitization and significant simplification of tax control of individual incomes |
Simplifying and optimizing the declared information while enhancing control mechanisms |
The document is open for public discussion until 27 March 2024. Readers may submit comments and suggestions on the e-government portal.