Ukraine has a 13 billion US dollar shortage in tax revenues, the country’s Ministry of Finance says. In 2016 the country collected 26.5 billion US dollars in taxes, much less than it should have done. According to the ministry, fiscal reform is needed to make the current system more transparent, corruption-free and more efficient.
For Ukraine the issue of a fiscal reform has been a priority since 2014. “Although there was no integral fiscal reform as such, numerous tax changes have been introduced in Ukraine since 2014,” Andriy Reun, head of tax at Evris, a law firm, tells Emerging Europe. “The most important tax changes include unification of statutory and tax accounting, abolishing monthly advance CIT installments and the introduction of an electronic VAT administration system.”
Transferring more operations online is one of the most important steps to have been taken to improve the Ukrainian fiscal environment. Today, 90 per cent of public visits to tax offices are to carry out just 10 types of operation, of which nine could easily be dealt with online, the Ministry of Finance reports.
“An efficient tax system is one which is simple, or at least predictable,” Mr Reun adds. “If the tax laws do not change on annual basis, and if the fiscal authorities would provide detailed and reasonable clarifications on complex issues in a timely manner, the tax system would become predictable, simplifying administration procedures for Ukrainian businesses and making the collection of taxes more efficient. When the tax rules are clear and fair and the state spends the money it collects taxes on improving infrastructure, the business environment, increasing pensions and the overall quality of life and safety of citizens, people are more willing to pay their taxes.”
Another issue is to make tax audits corruption-free and more efficient. The Ministry of Finance has underlined the importance of changing the way businesses are selected for audits as at present the number of companies selected is far above the capacity of regional tax offices. As Mr Reun explains, “in certain circumstances the existing selection criteria effectively discourages taking tax-loss positions or making export transactions. As things stand, a business may be audited simply because it pays less taxes than its competitors. This discourages innovation and additional investment.”
“Tax audits would be corruption free and more efficient if communication between the tax authorities and taxpayers during such audits would be limited. Computers cannot be corrupted, nor can they take bribes,” continues Mr Reun. “The transformation of tax audits into an electronic format, where taxpayers upload certain documentation to the servers of the tax authorities on a regular basis, with representatives of the tax authorities auditing such documentation without direct contact with taxpayers can be an efficient and corruption free tool.”
“The ministry has presented a number of short-term goals and directions to be performed by the State Fiscal Service. With respect to tax audits, it was stressed that selection criteria should be more detailed and precise to avoid selecting more businesses than could be practically audited. Indeed, the selection process should be revised and made clear. The selection criteria should not be constructed in a way that discourages legitimate tax positions or business transactions,” he concludes.