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Ukraine PM proposes pro-business tax cuts, more regional fiscal autonomy

Ukraine PM proposes pro-business tax cuts, more regional fiscal autonomy

7 August 2014

Prime Minister Arseniy Yatsenyuk asked on Aug. 6 for parliament to support several legislative initiatives at its Aug. 12 session, the Ukrayinska Pravda news site reported. The Cabinet of Ministers will submit a fiscal decentralization law that grants fiscal autonomy to the nation’s regions, not only in the form of authority and resources but also responsibility for distributing fiscal revenue. “Do you want to earn more? You’ll gain that opportunity,” Yatsenyuk told the weekly Cabinet of Ministers meeting on Aug. 6. “You will gain instruments in the form of those taxes that are collected and remain in local budgets. The better you work, the more you earn. The worse you work, the less you earn and the people will get rid of you such you’re all elected to the local bodies.”

 

Another legislative initiative to be reviewed by parliament involves liquidating the policing subdivision of the State Tax Service. Besides the tax police, such investigations are performed by the Security Service of Ukraine (SBU) and two economic crimes departments of the Interior Ministry, the latter of which he also proposed liquidating. In their place, he proposed creating a Financial Investigations Civil Service. “In all during the year, these three monsters conduct 61,000 criminal investigations, only officially,” Yatsenyuk said. “Every hour 30 entrepreneurs fall into a criminal case. There’s no time to work because everyone’s merely interacting with prosecutors, police and investigators.”

 

In addition, the Cabinet is considering eliminating fees for certain types of industries, extra charges on natural gas, rental payments for transporting oil and gas, as well as parking and tourism fees. As for excise taxes, “that’s a tax on luxury and therefore within the framework of a new excise fee we will introduce a classic luxury tax and include the registration of one’s first transport means, an ecology tax on fuel and an extra charge on electricity rates,” Yatsenyuk said.

 

Reforms are planned in reforming the system of paying value-added tax in the agricultural sector, as well as in creating a single rent payment on the use of water and land resources, he said. “We’re switching to a classic European model in which a single tax on real estate is introduced, which provides for the taxation of land and the real estate situated on a given land parcel,” he said. The Cabinet will spend the next month discussing the tax reform with business and the citizenry. “If you know how to do it better, tell us,” he said.

 

Zenon Zawada: The legislative initiatives are precisely what the Ukrainian economy needs to become competitive in the global market place. Granting regional governments greater autonomy will enable them to address local needs, particularly when it comes to infrastructure and education. More fiscal autonomy will also enable them to compete with each other to attract business and residents. Meanwhile, eliminating tax investigation bodies will also significantly improve business conditions in Ukraine.

 

The proposal of dramatic tax cuts comes on the heels of having significantly raised taxes on natural gas produces and iron ore miners. So it’s clear the government has a policy of targeting certain economic players with higher taxes (oligarchs with super-profits) while reducing the burden on others (small and medium entrepreneurs). The policy looks entirely appropriate and has the potential for success. As we stated yesterday, laying off as much as 50 percent of public servant will need to be accompanied by improved conditions for small and medium business. Cutting taxes is precisely what needs to be done for that. We hope these measures don’t merely become pre-election, populist campaign fodder.

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