Business is against the introduction of a progressive tax scale and increased burden on honest taxpayers

30/ 05/ 2022

Last week, the Verkhovna Rada of Ukraine registered draft law №7406 On the collection and accounting of a single social contribution (SSC) to the obligatory state social insurance. And the business representatives are greatly concerned about that new document, especially given such a difficult time in Ukraine. It should be noted that the name of the draft law is misleading as it mentions only the SSC, while the draft proposes changes also to the PIT (personal income tax). Thus, the document proposes a selective change in the rules only for the taxation of salaries. Thus, it is suggested to introduce a progressive scale of personal income taxation at the rates of 9% - 18% -25% for the PIT and at the rates of 11% -22% - 29% for SSC. It is obvious that such measures create an additional burden on business during the war while companies continue to work, support the country and pay salaries to employees. This will be especially a hard hit on honest businesses as they transparently pay high salaries to skilled workers. Moreover, over-regulation and increased tax burden can eventually lead to such negative phenomena as increasing the value of goods and services of honest companies, shadowing salaries and the economy as a whole, the potential brain drain, and so on. Such measures will in no way contribute to economic recovery, unemployment reduction, or the socio-economic situation (as envisaged in the EBA explanatory note). Besides, the novelties will not affect the reduction of the gap between PIT and SSC for taxpayers, as well as beneficiaries of existing low-tax regimes in Ukraine. Moreover, business considers it premature to talk about raising taxes, given the lack of an effective fight against corruption, the shadow economy, and so on. The European Business Association has consistently advocated for a reduction in the tax burden on salaries, the introduction of simple and clear tax rules, and their strict implementation. Therefore, the EBA community appeals to the Verkhovna Rada Committee on Tax and Customs Policy not to support draft Law №7406 as one that contains significant risks for honest business and the economy.

Last week, the Verkhovna Rada of Ukraine registered draft law №7406 “On the collection and accounting of a single social contribution (SSC) to the obligatory state social insurance”. And the business representatives are greatly concerned about that new document, especially given such a difficult time in Ukraine.

It should be noted that the name of the draft law is misleading as it mentions only the SSC, while the draft proposes changes also to the PIT (personal income tax).

Thus, the document proposes a selective change in the rules only for the taxation of salaries. Thus, it is suggested to introduce a progressive scale of personal income taxation at the rates of 9% – 18% -25% for the PIT and at the rates of 11% -22% – 29% for SSC.

It is obvious that such measures create an additional burden on business during the war while companies continue to work, support the country and pay salaries to employees. This will be especially a hard hit on honest businesses as they transparently pay high salaries to skilled workers.

Moreover, over-regulation and increased tax burden can eventually lead to such negative phenomena as increasing the value of goods and services of honest companies, shadowing salaries and the economy as a whole, the potential brain drain, and so on. Such measures will in no way contribute to economic recovery, unemployment reduction, or the socio-economic situation (as envisaged in the EBA explanatory note).

Besides, the novelties will not affect the reduction of the gap between PIT and SSC for taxpayers, as well as beneficiaries of existing low-tax regimes in Ukraine.

Moreover, business considers it premature to talk about raising taxes, given the lack of an effective fight against corruption, the shadow economy, and so on.

The European Business Association has consistently advocated for a reduction in the tax burden on salaries, the introduction of simple and clear tax rules, and their strict implementation.

Therefore, the EBA community appeals to the Verkhovna Rada Committee on Tax and Customs Policy not to support draft Law №7406 as one that contains significant risks for honest business and the economy.