ADAPTATION OF THE TAXATION SYSTEM OF UKRAINE TO THE REQUIREMENTS OF EUROPEAN UNION

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Ternopil National Economic University, Ukraine e-mail: luts_ai@yahoo.com

Viktoriya Kramar

Taxation and Fiscal Policy Department/ PhD Student Ternopil National Economic University, Ukraine e-mail: zvictoria@tane.edu.ua

ADAPTATION OF THE TAXATION SYSTEM OF UKRAINE TO THE REQUIREMENTS OF EUROPEAN UNION

Abstract

In the research the problematic aspects of the national taxation system functioning are considered. The recommendations for the national taxation harmonization are given.

Key words: taxation system, shadow economy, tax regulation function, tax administration.

Introduction

The experience of the taxation system development when Ukraine became an inde- pendent country shows that the tax regulation of the economic relations only by changing different tax rates, implementation of the new taxes, fees and tax-credits for a certain group of tax-payers doesn’t lead to the formation of clearly defined tax system.

A great percentage of every country’s success belongs to the system of tax administration through which the real inter-relation of the state and tax-payers are implemented. That is why the international experience in many aspects can be very useful for Ukraine.

Unlike the countries of Central and Eastern Europe, in Ukraine as well as in other former members of the Soviet Union (except for Russia) the process of taxation system formation coincided with the development of independence and civil society. These processes became the important limiting factor, as the developed taxation forms that could be efficient only in the strong legal society conditions were transferred directly to the inadequate basement of the weak state power.

The present state

The comparison of the taxation systems in Ukraine and EU member-countries pre- sents a much higher level of general tax-load in our country.

There is even worth result of such a comparison of Ukraine and new members of the European Union: the rates of all the main taxes (income tax, VAT, individual income tax, etc.) in Ukraine are higher than average of the EU member-states.

In Ukraine comparing to the European Union the regulatory function of taxation policy in practically not executed: our neighbor-countries have several levels of VAT, differentiation of tax-rates, implementation of investments discounts and tax-credit, excise is much higher.

In Ukraine the electricity usage and real estate are not taxed. Ukraine remains behind

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in such aspects as organization of taxes collection, quality of relations between the tax-payers and tax-officers, regulation of misunderstandings, taxation process administration.

The system is also special by its disproportion and injustice of tax-load distribution.

First, tax payments have much higher value in the incomes of low-secured families than in the incomes of highly-paid tax-payers. Who earns less, satisfies in general only the lowest material needs, and is limited in such service as culture, education, medicine, health-care, purchase of books, periodical etc. Except that, high indirect taxes that are included in prices for con- sumers’ goods and services are mostly paid by poor, and force them to create illegal market- places, smuggling, and purchase of the products of poor quality.

Second, tax duties are disproportionally distributed between the types of business activities and individual enterprises through the legal and illegal privileges (releases, delays, discounts, etc.) in taxation, as well as implementing unfairly high requirements for the certain sectors of economy (gas and oil-transportation companies, and some other), and also for the state-owned companies. When in the first case the total tax duties of the enterprise drop to 0- 5%, in the second case they reach 60-70% of added values.

These reasons are the additional push to shadowing the economy and unnatural struc- tural and branch deformations in production and investments.

Legal documentation to accounting for taxes forces the enterprise to illegally lower the volume of total expenses comparing to the real level of expenditures. Such tax requirements cause the calculation of comparatively increased income tax payments, and this is the way how a portion of company’s owners’ capital goes to the budget. In fact, in such a way a fiscal discrimination of private and corporate sectors of economy is demonstrated, and the companies don’t have a possibility to be reimbursed for their expenditures. It makes an exis- tence of a business problematic.

System of the attitude of tax-offices towards the tax-payers has an occlusive charac- ter with the uncontrolled and apriori right tax-administration. It led to the creation in Ukraine previous years the administrative and punishment organization of fixation and customs system. It had the following consequences: 1) negative investments and business climate; 2) inef- ficient system of tax collection in narrow tax basement, hiding incomes from the tax-officers, very high expenses, duplication of the functions by different institutions, irresponsibility for the obligations and liabilities; 3) un-official system of criminal abuse in re-distribution of tax inflows, bribes and criminal agreements with the tax-payers on the decrease of tax duties.

Organization of tax collection in our country is not consolidated, duplicates the same functions in different institutions. It is characterized by un-controlling with the different sys- tematic law violations, with high expenditures for conducting accountancy by tax-payers and for the functioning of tax administrations. Tax-payers are practically dependent on the tax- officers who at the same time do not provide the services needed (informational, legal, con- sulting, organizational) to the tax-payers, do not account for non-completion of their functions or causing by their illegal actions the material and moral damage.

Companion of Ukrainian taxation system with its analogs in EU member-countries is needed to define the compatibility of our country on the world market of goods and investments, and to choose the main directions of tax related reform. The comparison is needed in certain directions: level of general tax-load; its distributions between the main types of taxes and groups of tax-payers; fiscal effectiveness of its regulative power; correctness of tax duties calculations, etc.

The comparative level of tax-load by types of taxes in different countries are pre- sented in Table 1. According to all main taxes (VAT, corporate income tax, individual income tax, social insurance duties) the tax-load in Ukraine is higher or at the average level than one of the EU countries: VAT in Ukraine – 20%, in EU – 19,4%; income tax correspondingly 25

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and 27,4%; social payment of enterprises – 39 and 24,7%. Only in the level of excise which is the most efficient regulatory tax, average rates in Ukraine (2.1% of VAT) is lower than in EU countries (3.1%), that is an additional proof of imperfectness of taxation system: general low tax pressure in Ukraine doesn’t encourage the limitation of production and consumption of goods and services that are dangerous for health.

Foreign countries going through the evolutional way of development for their taxation system at the certain moment implemented the effective tools and methods of managing tax payment process. Analysis of their experience gives the possibility to draw the conclu- sions on acceptability of certain practical decisions to be used in Ukraine. It is important to mention the shift of stress to the segment of mass-explanation work; and making partner relations with the payers, liberalization of reports submission process and conducting inspections, usage of progressive payers’ selection methods for conducting inspections, etc.

Table 1. Level of corporate tax, VAT and excise in Ukraine and EU member-countries, 2004, %

% of GDP Countries Corporate tax VAT

Income tax VAT Excise

Ukraine 25,0 20,0 4,7 4,9 2,0

EU average 27,4 19,4 3.1 7.7 3.1

Estonia 0,0 18,0 1,3 9,6 -

Cyprus 15,0 15,0 5,0 7,5 2,0

Latvia 15,0 18,0 2,1 7,7 3,2

Lithuania 15,0 18,0 0,6 7,4 3,4

Malta 35,0 15,0 4,1 6,5 2,7

Hungary 17,7 25,0 2,4 8,0 3,6

Poland 19,0 22,0 1,9 8,6 4,4

Slovakia 19,0 20,0 - 7,7 -

Slovenia 25,0 20,0 1,4 9,0 3,6

Check Republic 28,0 19,0 4,4 6,4 3,3

Ireland 12,5 21,0 - 7,1 3,5

Source: own compilation based on www.urstat.gov.ua, www.epp.eurostat.ec.europa.eu

To make the taxations system of Ukraine closer to the European requirements, it is necessary to conduct the following:

• renovation of tax relations norms that must guarantee the presumption of un- guiltiness for tax-payers, equity of their rights, willingness to pay taxes; creation of partnership relations between tax-officers and tax-payers, providing a declarative principle of tax payments and submitting tax-reports by post; renovation of mechanism for the enforced receipt of tax debt in accordance with the court or- ders;

• cancellation of observation functions of tax institutions, and implementation of exclusively court regulation to solve the disputes;

• transfer to the calculation of company taxable income in accordance with the international accounting standards, declarative choice of depreciation, taking into account the losses of the previous year;

• transfer to the balance method of payments calculations or VAT reimbursement, and also self-calculation of duties; implementation of calculations method using

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data from invoices as well as accounting for added value from the moment of goods delivery; transferring to the European model of privilege 6% rate setting for some socially important goods, exclusion of agriculture from the VAT system, usage of 0% rate and European norms of tax privileges; reservation of VAT amounts on special state accounts for the quick reimbursement of tax credit; cancellation of obligatory inspections as a requirement for the reimbursement;

• providing the required payments of individual incomes for the personal accounts of state compounding pension system and expanding of it to the other sources of state budget deficit financing; dynamic decrease of only social payment after me implementation of personal pension accounts of the citizens;

• renovation of tax payments content by removal of illegal and doubtful payments and implementation of tax on energy-expending, ecological pollution, washing the natural resources, excessive usage of the real estate;

• giving the Ukrainian taxation system the signs of supporting the investments processes with the help of quickened capital depreciation, liberal taxation of corporate incomes and renewal of tax dividends; cancellation of taxation by VAT – the investment operations and income earned by selling corporate and other property rights; implementation of property tax (on real estate); implementation of legally regulated investment preferences, discounts, credits in cases of techno- logical innovations, environment protection, small business, etc.;

• starting the trend of more dynamic decrease of business taxation, and in general decrease of direct tax rates: first of all on companies income and joined social duty; concerning indirect taxes – increase of excise share and rates;

• for the adaptations of participants of fixation and budgetary relations to the new rates and conditions: slow yearly decrease of the main state taxes;

• renewing the usage of rates differentiation for certain taxes to increase its regulatory influence: tax of the energy sources for the support of alternative energy sources and decrease of energy consumption; individual income tax – to decrease the tax-load for the poorest and receiving low income; payments to the compounding pension funds – opposite, for decrease of relative part of liabilities of tax-payers with medium and high income;

• cancellation of tax on social, cultural, educational, natural, social enterprises and organizations if they are not distributed among the owners and used for the enterprise development;

• return of the portion of income tax payments in cases of their expenses on medicine, education, health care, charity donations, interest payments for the mort- gage;

• usage of different modern instruments of taxation system management known in European countries: system of excise warehouses, non-customs trade territory, simplified procedure of accounting and reporting for the small enterprises, simplified customs documentation for import of goods, joined territorial service office in receiving different tax-payments, electronic form of controlling the tax declaration, etc;

• decentralization of taxation mechanism, including a tax-payments receipt decentralization, setting the past of tax duties in the local budgets, cancellation of re- distribution in accordance with the equity coefficient and other transfers among the state budget, and those of villages, towns, cities, regions;

• reorganization of tax and customs service in the following directions: publicity, control by the society, elimination of investigative and punitive functions and implementation of state external control of its work, not to allow this office to

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prolong the tax-payment; re-distribute the tax inflows, integration of tax-service of different state bodies and foundations, etc.

New tax model has to fit three defined criteria:

1) realization of social development priorities

2) assurance of investment opportunities for the economic development

3) creation of attractive conditions for social society development and legal state in Ukraine

Conclusion

The result of the foreign experience of tax administration in the future will give the opportunity to have a great influence of activities efficiency increase for fiscal services of our country.

REFERENCES:

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3. Стратегія податкової реформи//. Національна комісія з податкової реформи при Президентові України. (2006), Проект, Київ, pp. 101.