Over the years, Ukraine has been consistent in demonstrating its strive to join the European Union and NATO, by taking efforts to reform its economy to pass the EU eligibility test. Having made some progress, there is still a lot to be done in such vital areas as reforming the system of customs duties and taxes, which play an important role in any state system.
Last month’s Luxembourg trial regarding Amazon showed how complex fiscal policy issues could be and that the European Commission can also be wrong about tax policy for large companies and industries.
It is very important that no such mistake occurs in the case of Ukraine, an emerging democracy that aspires to join the EU.
In this regard it is quite disturbing that Ukraine’s new leadership, having proclaimed themselves to be reformers, seems to have launched a business redistribution in the interests of certain actors instead of promoting the development of democratic institutions. The tax reform, pursued under the pretext of tackling corruption and promoting deoligarchization, may cause further redistribution of the market, which in the end could result in the loss of statehood.
It is quite disturbing that Ukraine’s new leadership, having proclaimed themselves to be reformers, seems to have launched a business redistribution in the interests of certain actors instead of promoting the development of democratic institutions. The tax reform, pursued under the pretext of tackling corruption and promoting deoligarchization, may cause further redistribution of the market, which in the end could result in the loss of statehood
Today, eastern Ukraine is afflicted by war, so raising taxes could leave tens of thousands of people out of work, putting the whole country at a disadvantage against the backdrop of Russian military aggression.
Tax policy in the post-pandemic period is an important issue for the EU and the world. Governments have taken different approaches to solving this problem and restart the economy, but the Ukrainian government’s decision to raise taxes is alarming to say the least. The situation in Ukraine is tense, with the central government squeezing taxes out of backbone businesses despite the war and the pandemic.
After the occupation of such large industrial centres as Donetsk and Lugansk, the industrial regions of the East of Ukraine, which include parts of Lugansk, Donetsk, Kharkiv, Dnipropetrovsk, Zaporizhzhia and Poltava regions, have strategic importance for the development of Ukraine according to the monograph of the professor of Lviv University O. Shablii “Social and Economic Geography of Ukraine”. The fuel and energy complex, ferrous and non-ferrous metallurgy, mechanical engineering, and industries associated with the military-industrial complex play the leading role in the heavy industry branches.
In their strive to ensure the balance of budget revenues, the authorities of Ukraine are trying to impose higher taxes on major extracting businesses explaining such decision with high prices for their products on the global market. However, according to Bloomberg analysts, commodities prices tend to be volatile, as they have a cyclical nature, which means that the economy of Ukraine might lose much more if the tax size is defined by the current market price of the product. When the market changes and the prices drop, the state budget might lose more than a half of what it receives now. This is easy to calculate and the Kyiv’s authorities have already been warned about it by local analysts.
It is important to note that Kyiv’s tax policy regarding the key industrial players in Ukraine’s economy is of strategic importance not only for the military confrontation between Ukraine and Russia but also for the legitimate formation of democracy and ultimately for a stable situation throughout Europe
Among other initiatives offered by the new bill, it is planned to introduce an excise tax on the sale of green electricity to fill the budget of Kyiv. According to some sources, the tax will vary from 3,2% to 40%, which might affect further investment in the industry and impede the transformation of the energy sector. Also, the Ministry of Finance of Ukraine intends to assign a 5% excise tax on retail sales of tobacco products to prominent market players. The government expects to fill the budget for 1,9 billion hryvnias or 56 million euros out of it, while at the same time depriving municipalities of 2.4 billion hryvnias in local taxes.
Bearing in mind that this is not the first hasty decision by the authorities in the field of economics, state policy and law, the obvious unfortunate consequences for the emerging state will not be long in coming.
In conclusion, it is important to note that Kyiv’s tax policy regarding the key industrial players in Ukraine’s economy is of strategic importance not only for the military confrontation between Ukraine and Russia but also for the legitimate formation of democracy and ultimately for a stable situation throughout Europe. Ukraine needs to pursue a special fiscal policy in relation to its regional backbone enterprises to prevent the Crimea and DPR/LPR from uniting and being forever annexed by Russia.
The European Union is on the eve of significant tax reform now. The European Commission declared they want to propose more uniform business tax rules for the 27 EU countries, which currently have 27 different tax systems.
Last week, a draft statement from the European Commission, read by Reuters, noted, “At the EU level, we have to build on that progress and promote an equally ambitious business tax program that ensures fair and efficient taxation.” The European Commission will issue an important report entitled “Business in Europe: The Basics of Income Taxation.” One of its components is the interest of the workers of enterprises of companies operating in the territory of the European Union and the interests of the region where this business takes place.
According to Reuters, the European Commission believes the new reform will lower barriers to cross-border investment, reduce red tape and compliance costs in the Single European Market, and support jobs, economic growth, and investment. It would also provide an easier and more equitable way of distributing taxes and predicting tax revenue for governments. It seems that the reform of Ukraine to increase the taxes meets neither the task of supporting jobs nor contributes to economic growth or the growth of investments. The Ukrainian economy is intricately linked to the extractive industry. Therefore, such innovations can drastically affect its sustainability.
The current increase in taxes in the US, UK and EU is associated with large payments made by governments concerning large and small businesses, people who have lost their jobs, students, schoolchildren. The Ukrainian government did not spend much to purchase vaccines on the world market and has not even initiated a proper vaccination campaign for the population. The state also did not provide any significant support to its residents in the form of any assistance, neither to companies nor the citizens. And at this stage, it is hiding behind the European trend of increasing taxes for large taxpayers to achieve their goals, which are far from being transparent.
