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Money Up Front, Tax Reform Later

10 March, 00:00

Do you want to receive a handsome pension? If so, demand that your employer pay you officially and not under the table. Such a suggestion came on March 4 from Finance Ministry Tax and Customs Policy Department Director Petro Andreyev. But is it worthwhile for the employer to bring the wages and salaries into the open?

Even though in making such statements the Finance Ministry threatens to touch off labor disputes, it is far from certain that such calls serve their intended purpose. Answering The Day’s question, Andreyev agreed that wage earners are quite limited in their possibilities to influence employers (allegations that more and more employees take this matter to the tax authorities seem quite questionable). At the same time, the Finance Ministry understands that the current tax burden on the wage fund discourages employers from voluntarily bringing wages and salaries into the open. Hence the idea of the Finance Ministry to partially shift this burden (up to 5%, according to Andreyev) from employers to employees. However, before that the latter must be persuaded to voluntarily remit to the Pension Fund the increment to their official wages and salaries resulting from lower wage fund deductions, which currently stand at 37.5%, but could be reduced to 30% by the end of the year, according to the proposal of the Finance Ministry. This idea is not bad in principle and is even supported by employers. Still we are yet to see what shape it will eventually take, that is, after all the adjustments and revisions in the offices of state functionaries, whose pensions are calculated using a completely different system.

Thus far one can say that the single social tax bill that is being drafted might still change its name and, accordingly, its substance. In any case, Andreyev expects the government to reduce social taxes only after it sees that budget revenues have in fact risen after wages and salaries have been brought into the open. So far the picture is not quite clear. After the individual income tax was reduced to 13% (the Finance Ministry emphasizes that this is the lowest rate in Europe), income tax receipts for January increased, but this could be due to the payment of thirteenth wages or other New Year’s bonuses for employees. February figures will be more definitive.

Yet an ace up the sleeve of the Finance Ministry, which is aimed at reducing the shadow sector, is the bill On Legalization of the Incomes of Individuals Who Evaded Taxes or Mandatory Deductions to Budgets and State Funds. The Ministry Plans to complete the long-awaited tax amnesty in one year. Individuals with undeclared incomes will be asked to declare them, transfer the amounts in question to one of the Ukrainian banks, and pay a 10% income tax. Answering The Day’s question as to why the law-abiding citizens must pay 13%, while tax evaders only 10%, Andreyev explained that the Finance Ministry decided on this figure only because other similar bills submitted to Verkhovna Rada proposed an even lower amnesty tax rate (between 0 and 8%). The Finance Ministry expects four billion hryvnias to return to Ukraine as a result of the tax amnesty.

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