Turnover tax and reduction of value added tax rates in Ukraine

22.07.2013

The Ministry of Taxes and fees of Ukraine has developed a bill according to which there will be some changes in certain tax rates.

According to the draft bill there will be the reduction of rates of value added tax from current 20% to 9%.

However, along with a decrease of the tax rate, it is proposed to abolish all tax remissions, which are concerned with the payment of value added tax, and to introduce a new tax – turnover tax.

The rate of this tax will be 1-2%. You can find this draft bill on the official website of the Ministry of Taxes and fees of Ukraine.

Based on: http://minrd.gov.ua/

Expert’s opinion

Per se: instead of reducing total tax burden on businesses, we can see the introduction of new tax, which is impossible not to pay.

In accordance with usual value added tax (VAT) tax liabilities can be compensated by a tax credit. In some cases a tax credit has more liabilities and should be refunded from the budget.

Such method of tax calculation allows to unlimited number of intermediaries to participate in the chain ‘manufacturer – final customer’. VAT which is paid at each stage of the chain will be counted in further resale.

In concern of a new turnover tax there are no compensatory mechanisms. And at every sale step in this chain of intermediaries the total cost will increase by 1-2%.

От the one hand, the proposed change of such important for country tax will undoubtedly lead to a decrease in the number of intermediaries on the way from manufacturer to consumer.

At the same time the idea of simplification of tax administration should also have been realized. What could be easier: the amount has been received by bank, multiplied it by 1% and the final stage will be the budget. No refunds, facilities, digressions. Everything is simple, transparent and understandable. Banks can become tax agents and taxmen will not do anything.

But it will be possible only in case of abolition of VAT.

In fact, we have both usual VAT with recovery mechanisms and a new tax. A separate accounting and financial reporting should be organized in both cases.

There is no hope that it will be possible to avoid fines in case of tax calculating mistakes even at least at first.

The proposed innovations are radical, unusual and affect the interests of the business, without exception.

For some, such situation will be an indulgence. In the case of elimination of intermediaries in the chain ‘manufacturer – consumer’, in general it should lead to lower prices.

For export-oriented enterprises, on the contrary, the tax burden increase. And we understand that the delegates, who is lobbying for the interests of metallurgists, chemists, seed vessels and other exporters certainly will promote the additions and changes that will maintain status quo.

It will be interesting to watch the developments on the calculation of turnover tax and VAT for companies engaged in oil and gas transit through Ukraine.

Will be waiting for battles in the Verkhovna Rada in January 2014.

Yaroslav Lomakin ( Managing partner of “Honest&Bright” company)