Concept of the Draft Law on so-called “tax amnesty”
What is the concept of the Draft Law on so-called “tax amnesty” and what are the prospects for its successful realization?
The Draft Law on the so-called “tax amnesty” is already registered in the Ukrainian Parliament under No.1232 and its official name is On Amendments to the Tax Code of Ukraine on Specifics of Applying Special Reporting for Breaches Committed by Individuals of Tax and other Laws Controlling those Laws on Control Authorities up till
31 December 2018.
This initiative is justified as the tool for reducing the size of the “shadow economy”, which reached 32% of the country’s official GDP in January–September 2018 and by combating informal employment (the number of people employed unofficially in 2018 was 21.6%). Thus, the Draft Law has to influence this situation by providing a “special reporting” mechanism.
Under the term of “special reporting” the authors of the Draft have in mind exemption for individuals from legal liability (Article 205 and 212 of the Criminal Code) for breaches of tax law that were committed up till 1 January 2020 (inclusive) providing that tax liabilities are paid to the state budget. In order to pay liabilities, the taxpayer shall submit, between 1 January and 31 March 2020, the PIT report (declaration).
The tax rates will defer depending on the reported “hidden income” as follows:
1) 5% of PIT will apply to the currency reported, movable and immovable property, securities, shares, property rights on objects of intellectual property or financial instruments; 2) 10% of PIT will apply to other property rights; and 3) the preferential rate equal to 2.5% of PIT will apply to assets used for further purchase of Ukrainian government bonds issued by the National Bank of Ukraine.
The “special reporting” regime will not apply to tax agents or to income obtained as a result of crime, corruption or related to the latter offenses as well as to income found as a result of a tax audit carried out by 1 January 2020.
According to the Draft, after the deadline for reporting has expired, the tax authorities will have 90 days (expiring early June) to evaluate the assets reported and determine the amount of tax to be paid. The Draft envisages a guarantee that information obtained as a result of special reporting will be treated as confidential and will not be disclosed without the written consent of the declarant.
A special threshold is also envisaged that would automatically be treated as the amnestied one – the equivalent of UAH 100,000 (about USD 4,000). These amounts may be not reported, taxed and are free from sources of income analysis. The Draft does not specify whether this amount shall be deposited to financial institutions as well as the reported one. Actually, prior to reporting, taxpayers shall deposit their currency values and precious metals into accounts of national financial institutions. Such assets will remain deposited for at least a year after the reporting deadline, which is
31 March 2020.
Taking into consideration the fact that the attempt at a tax amnesty process in 2015 was not successful, according to evaluations by experts, there is the actual question as to whether initiative will have a positive impact on the State Budget, individuals and legal entities.
Larysa Antoshchuk, Attorney, Head of Tax Dispute Resolution Practice, KPMG Law Ukraine