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Property income should be taxed, not the property itself – EBA survey

07/ 05/ 2020

The expert community has long been discussing the relevance of property taxation in general and the effectiveness of the current model of property tax.

Currently, the tax rate is set in accordance with the decision of local authorities in an amount not exceeding the national limit – no more than 1.5% of the minimum wage per 1 square meter. Thus, in 2020, the maximum tax rate will be 70.84 UAH per square meter (minimum wage – 4 723 UAH).

However, in Ukraine, there is, in fact, no effective system of accrual and control over the payment of this tax in a full and timely manner. Thus, in some cases, the costs of administering this tax may be higher than the amount of tax itself.

Therefore, the European Business Association decided to survey tax and finance experts of companies whether they consider the current model of property taxation effective and what changes it needs.

Existence of property tax

The results of the survey show that more than half (51%) of respondents are against the taxation of the property itself. A significant part of respondents (about 28%), although they do not object to the existence of the tax in principle, but have several significant proposals for its modification (such as the introduction of differentiated rates, simplification of calculation and payment, tax exemptions, etc.). About 21% of respondents support the existence of the tax, referring, in particular, to the international experience and the existence of a similar tax in other countries.

Calculation of the tax based on the market value of property

Most respondents – almost 71% do not support the calculation of property tax based on its market value.

However, about 15% of respondents support such a model.

Another 14% of respondents, although they support such a model in principle, admit that there are significant problems with its application. In particular, there are concerns regarding difficulties with estimating the market value of the property (impartiality, ability to take into account significant factors of influence, etc.), the possible volatility of market value, the need for a transparent and efficient valuation market for such a system, etc.

Modification of the current tax model

If the current model of property taxation remains (based on square footage), the top 3 proposals for improving the model will be as follows:

– To increase non-taxable square footage

– The right to reduce individual income tax and military levy by the amount of property tax

– Property used as a place of residence should not be taxed

– Other

• property used as a place of residence should not be taxed;

• non-taxable square footage should be increased;

• introduction of the right to reduce individual income tax and military levy by the amount of property tax.

Necessary changes

According to the survey, most EBA experts (71%) consider * that only income from the use of the property and income from its alienation shall be taxable, and not the property itself.

63% of respondents think that it is necessary to simplify the taxation of income from the use of the property for individuals, namely, to reduce the individual income tax rate and simplify reporting.

Almost half of the respondents (48%) believe that individuals should have the right to depreciate property used to generate income.

Another 47% of respondents consider that the acquisition of property should not be subject to special transaction taxes (except VAT in cases provided by law).

Natalia Artemchuk EBA Tax & Customs Committees Coordinator
In the current situation, after two months of forced quarantine a large part of the population and enterprises are experiencing significant financial difficulties, the country′s leadership should extend property tax exemptions as one of the socio-economic measures to support the population and the SMEs. The European Business Association has repeatedly appealed to the leadership (the Government, Verkhovna Rada, the President) to support legislative initiatives on anti-crisis measures, including exemption from paying property tax for the period of quarantine. The EBA Tax Committee do not only analyze new legislative initiatives and respond to them but also develop comprehensive changes to tax legislation to improve the business environment in Ukraine.

*multiple choice 

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