Ukraine has no compensators for budget revenue loss, minister says

The Ukrainian government has not found compensators for budget revenue losses caused by the Finance Ministry’s tax reform proposal, Economy Minister Aivaras Abromavicius said during a Ukrainian-German Business Forum in Berlin on Oct. 23, the UNIAN news agency reported. The proposal foresees boosting the enterprise profit tax to 20% (from 18% currently), the personal income tax to 20% (currently ranging between 15% to 20%), and cutting the payroll tax to 20% (from 41.5% currently). The VAT rate would remain unchanged at 20%. The reform is expected to lead to a UAH 60 bln state collections decline. “There will be a shortage of funds and we do not have any guarantees for compensators,” he said.

Alexander Paraschiy: Given the government’s strict commitment to the IMF on the 2016 budget deficit of 3.7% of GDP, the proposed tax rate cut could be approved only after substantial spending cuts.  At the same time, we do not see the political will to cut spending under the current economic situation. It’s this absence of political will among her colleagues that prompted Jaresko turn to the public in a move that was very unusual for Ukraine. Against this backdrop, it looks like real tax reform – whether this or any form – has all the chances to be postponed for better times.