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At Crouch Start. What Recent Amendments to the Tax Code Promise to Ukrainian Business

We were looking for a large-scale tax reform in 2016 in vain. But the Ministry of Finance together with the expert community and the business worked over the amendments to the Tax Codethat were promoted by the Verkhovna Rada in December last year. The Cabinet of Ministers called the new version of the Tax Code of Ukraine to be “anti-corruption”. In fact, this is about numerous technical amendments and the elimination of discrepancies the Code was riddled with. However, not all taxpayers were happy. For example, the increase of the minimum wage to UAH 3,200 seriously hit

employers in the pockets.

Yet, there are positive innovations. They include a limitation of powers of the State Fiscal Service (SFS). Now, it is the Ministry of Finance that develops regulations. Regional units of the SFS still have the right to carry out inspections, while tax inspectorates were assigned only the service function.

However, the government and deputies did not manage to agree on the transfer of tax databases to the Ministry of Finance. Nevertheless, it may be even better for taxpayers, as the quality of database administration raised a lot of questions, as well as their protection from outside interference after the change of the administrator.

The tax police sank into oblivion. Though, the deputies dismissed the enforcement block of the SFS by mistake. Tax policemen themselves (including Serhii Bilaчі n, their chief) insist on its legitimacy. They are supported in this issue by Nina Yuzhanina, the chairperson of the specialized committee, who is strictly opposed by the Minister of Finance Oleksandr Danylyuk who does not want to revive the tax police post factum.

In order to resolve this conflict, on 22.02.2017 the Minister of Finance presented a draft law on the establishment of the Financial Investigation Service at the meeting of the Parliament committee for tax and customs policy. This was reported by the press service of the Ministry of Finance of Ukraine.

The idea to establish a new body and the relevant draft law were developed by the Ministry of Finance in cooperation with the task group formed by the Prime Minister Volodymyr Groysman.

“This strategic service will investigate serious financial and economic crimes that threaten the national security in the economic sphere. The main functions of the Service include identification, prevention, detection and investigation of crimes in the economic, financial and fiscal spheres, as well as analytical and preventive activities to identify factors contributing to the commission of such crimes”, the report says.

Several important innovations concerned VAT administration. Now, all settlements with regard to this tax will be made only from special account. The only exception is the VAT obligation and tax debt incurred before 1 July 2015. They are still transferred from a current account.

By the way, if the amount available on a tax payer’s VAT account exceeds its obligations under the returns, the difference may be refunded to its current account. In other words, the money is not lost or “suspended”. There was a slight liberalization concerning the timing of registration of VAT invoices and payment adjustments. Invoices executed in the first half of the month have to be registered by its end, and those executed in the second half have to be registered by the 15 th day of the month following the reporting one.

They Ministry of Finance promised to speed up VAT refunds. First of all, it will happen because there will be one refund register instead of two, and the refund process will be public. The SFS also said that VAT refunds would be fully automated. But fiscals are fibbing a little as refund amounts claimed still will be checked. And this means that there still will be possibilities of abusive practices and exerting pressure on taxpayers.

But it was agricultural producers who were least pleased by the amendments to the Tax Code of Ukraine. Since 2017, they have been transferred to the common VAT system from the special VAT regime where tax amounts accumulated on individual accounts and were refunded to farmers. However, the Government promised UAH 4 billion as direct subsidies from the budget as compensation to the agro-industry in 2017.

Another controversial news was the introduction of a new mechanism of blocking VAT invoices. The idea is that the Ministry of Finance and SFS intend to deal with the so-called “twists” and other VAT evasion schemes. Stopping bills will solve the problem of unilateral termination of contracts for EDS (electronic digital signature) recognition. Instead of a complete “interdiction” of a taxpayer from VAT administration, only specific operation will be stopped. But the problem is that the Tax Code does not provide for blocking criteria, they must be developed by the Ministry of Finance. The possibility to challenge blocking is illusionary as well. In theory, the taxpayer has the right to just I fya “frozen”transaction. But since it will be a special commission under the SFS that tell the final word, the likelihood of biased decisions is extremely high.

Deputies decided to leave the income tax rate the same, i.e. 18%. But they introduced an accelerated depreciation of fixed assets of Groups 4 that were acquired after 1 January 2017. The term of useful life of fixed assets for the purpose of calculating depreciation will be 2 years instead of 5 years. The main conditions require fixed assets not to be previously used in Ukraine, to be put into operation in 2017-2018, to be used in own activities, not to be sold or rented. The idea is that this innovation will encourage businesses to reinvest profits, and thus it will partially solve the problem of borrowings shortage.

However, the Ukrainian Government does not plan to stop on these changes. At a minimum, we should expect for a tax on withdrawn capital. It will ensure an equitable taxation for companies that currently pay the income tax, and minimize the interest of the SFS to taxpayers. While funds are not withdrawn from business, inspectors will not interfere with the activities of an enterprise. Also, the Government continues to nurture the idea of further reduction of payroll taxes, i.e. personal income tax and unified social tax, including their merge. But this initiative is not likely to be discussed before 2018.

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