The document outlines Ukraine's goals for tax reform, including simplifying the complex tax system, reducing corruption, and improving the business climate. The reform aims to decrease the large shadow economy, decentralize tax collection, and use taxes to incentivize jobs and investment. It proposes reforms such as consolidating the number of taxes, improving transparency, granting tax breaks for economically depressed regions, and designing taxes to support high-tech industries. The reform would be implemented gradually on a regional basis.

1. TAX REFORM IN UKRAINE

2. TAX REFORM PRIORITIES
Everyone must pay taxes
Paying taxes should be simple and clear
Taxes should not hinder business activity

3. REQUIREMENTS
Proper income for the government
Fair distribution of the fiscal burden
Favorable conditions for investment
and business development
No room for corruption
No obstacles
for business activity

4. UKRAINE’S TAX SYSTEM TODAY
Too complex and non-transparent —
164th place in the Paying Taxes index*
Uneven tax burden on businesses
of different type and size
No incentives for business
development and job creation
Too many loopholes resulting
in tax evasion and corruption
0 2010 30 40 50
UKRAINE
RUSSIA
BRAZIL
TURKEY
MEXICO
ITALY
TAIWAN
ISRAEL
UK
USA
%
Size of the shadow economy in 2010, %
* Doing Business 2013
** World Bank
47%
One of the highest shadow
economy levels in the world

5. GOALS OF THE TAX REFORM
Goal
Bring economy out of the shadow
Simplify and unify the tax system
Improve investment climate
Decentralize the tax system
Earmark tax payments
Performance target
Size of the shadow economy below 25% —
the average level of the new EU countries
Ukraine in top-50 in Paying Taxes index
Tax burden not higher than in neighbor countries
At least 30% of the consolidated state budget
revenue remain on regional level
Revenue from a particular tax can be spent
on specific budget items only, spending on other
budget items is prohibited

6. IMPACT ON ECONOMY: TOP PRIORITIES
Creation of jobs
Creation of added value
Conservation of natural resources
Attraction of domestic and foreign investment
The impact is achieved primarily due to reallocation of tax
burden between different taxes/tax bases. Tax benefits should be
of secondary importance as an economic stimulus.

7. REFORMS
Short-term goals
(3-12 months)
Medium-term goals
(1-2 years)
Long-term goals
(2-5 years)
minimize the share of
the shadow economy
build a simple and
transparent tax system
reform the tax office
decentralize the tax system
improve investment
attractiveness of the economy
use the tax system
to stimulate development
of the competitive
technology-intensive
economy

8. EVERYONE MUST PAY TAXES
Strengthen control over the cash operations
and liquidate the “conversion centers”
Shut down business entities used to generate false tax credit claims
Strengthen control over the transfer pricing
Adjust the double taxation treaties with countries of lower tax rates
(e.g. Cyprus) to eliminate the practice of complete tax exemption
Cancel tax benefits which are economically unreasonable
Increase the license fees and natural resources taxes to
an economically reasonable level

9. SIMPLE AND CLEAR TAX SYSTEM
Decrease the number of taxes from 28 to
8-10 through elimination of taxes which are
fiscally inefficient or encourage corruption
Reduce the time needed to pay taxes
Decrease the number of documents for
the tax return filing
Harmonize national accounting standards
with the International Financial Reporting
Standards (IFRS)

10. Stop the compulsory collection of advance tax payments
Strictly control the VAT refunds (both timing and grounds for refund)
Eliminate VAT declarations and set up automatic VAT calculation
Implement automatic recognition of VAT invoices
TRANSPARENT TAX COLLECTION

11. FREE CHOICE OF THE TAX BASE
Introduce sales tax (similar
to the USA). Sales tax is collected
only once when a product or
service is sold to a final customer
or a VAT payer.
Unify tax rates for sole traders,
limited and joint-stock companies.
No particular tax system
should be assigned to a legal
form of taxpayer.
Allow taxpayers to choose
the tax base freely: they can pay
either VAT or sales tax.

12. SEPARATION OF FUNCTIONS
Function Responsible authority
Such separation of functions will allow to eliminate
corruption in the tax system
Tax collection
Tax inspection
Tax methodology
Ministry of Revenue and Duties
State Financial Inspection
Ministry of Economy

13. TAX ADMINISTRATION REFORM
Decrease the number of tax inspections
Dismiss the tax police
Reform the State financial monitoring service
(more independent, staff rotation)
Implement the universal online tax return filing
Allow the taxpayers to delegate tax agent functions
to third-party professional bodies (e.g. banks)
Step-by-step replace the tax office staff
Cut tax office staff and raise salaries
Source: iota-tax.org
Average tax revenue per tax office employee
(2012 year, in million EUR)
0 5.0 0.1 1.5 2.0 2.5 3.0 3.5
UKRAINE
MOLDOVA
BULGARIA
POLAND
SLOVAKIA
LITHUANIA
CZECH REPUBLIC
LATVIA
BELORUS
RUSSIA
ESTONIA
million EUR

14. IMPLEMENTING THE REFORM
The reform is implemented in a single region at a time
Total replacement of the tax system in the target region
Gradual expansion of the successful reform experience to other regions
Setting up a totally new
regional tax office
Notifying the taxpayers
about all prospective
changes through
seminars and trainings
Tax amnesty
in the region
Analysis of the
reform results
Adjustment of the
reform plan aſter
3 months
Repeating the
reform in other
regions
Launch of
a new tax
system in
the region
1 32 4 5

15. DECENTRALIZATION OF THE TAX SYSTEM
Reallocation of the tax revenues — local budgets keep
a minimum of 30% of the consolidated budget
Earmarked taxes — revenue from a particular tax can be
spent on specific budget items only
Taxation of property and land — to be widely used asa revenue
source for local budgets

16. REFORM OF THE INDIVIDUAL TAXATION
Introduction of obligatory declaration of large expenses should be preceded by a tax amnesty
Innovation Expected effect
Partially remove the social security duty from the employers,
with only a small fixed fee remaining
Transfer the responsibility for paying income tax and social
security contributions to individuals
Introduce obligatory declaration of large expenses
Reduced tax burden on job creation
Raised public awareness about paying taxes and control
of budget expenditures. This is an important step towards
reforms in the pension system and health-care insurance
Reduction of the shadow economy size

17. MODERNIZATION OF THE ECONOMICALLY
DEPRESSED REGIONS
For a specified time period
In return for the investor’s obligation for business
development and job creation
Investors can be granted a delay for tax payments
This innovation will help attract investment for the necessary
reforms in inefficient primary industries (e.g. coal mining)

18. TAX SYSTEM FOR THE TECHNOLOGY-INTENSE
ECONOMY
Taxation is used as a tool to stimulate economic activity in sectors
with high value added
Winning the competition for investment capital
Giving high priority to conservation of the non-renewables

19. THANK YOU FOR
YOUR ATTENTION!
Please send your comments and ideas to
reforms@dem-alliance.org