EBA opposes selective increase in tax burden on bona fide payers

15/ 11/ 2018

The Association has been stunned and grieved by the news about the Government’s approval of a draft law of the Ministry of Social Policy on changes in salaries taxation. Seemingly, the key tool to combat shadow salaries payments, according to the Ministry of Social Policy, should be the abolition of the cap, limiting the base for accrual of the single social contribution (SSC). On November 15, representatives of the EBA and Ministry of Social Policy held a meeting and discussed this issue. There is no doubt that canceling the cap for the SSC base will automatically lead to a significant increase in business expenses. Thus, the Ministry of Social Policy expects to receive an additional UAH 10 billion in SSC - respectively, the costs of business for mandatory payments will increase by this amount. It is scandalous that it would be bona fide taxpayers, paying wages openly without employing dodgy schemes, who would contribute a bulk of these additional revenues to the budget. De facto, hiding behind “fight with the grey salaries” slogan, the authorities are introducing a selective taxation of bona fide taxpayers, who have nothing to do with the grey salaries. Association believes that an increase in the tax burden on bona fide payers is a most unfair way to recover the losses suffered by the fisk because of the existence of easily available tax evasion schemes. The state must really focus on combating tax fraud, rather than try to imitate the fight against it. We are convinced that the measures proposed by the Ministry of Social Policy will further encourage unscrupulous taxpayers to continue with their shady schemes, since the Ministry’s proposals send an unequivocal message that any fiscal losses cased by the tax fraud will be recovered at the expense of honest taxpayers. As the Association has pointed out earlier, for such industries as education, services, and IT where salaries make up the lions share of costs, increase in SSC will drive up the business costs and prohibit creation of new jobs with legal wages, giving an additional impetus to the Ukrainian employees outflow. It is also highly probable that an increase in SSC costs will result in reduction in wages, which in turn will trigger a decrease in revenues from military tax and personal income tax (a decrease in the personal income tax will negatively impact local budgets revenues). Therefore, the Association believes that the measures proposed by the Ministry will be counterproductive in terms of combating shadow wages and may launch a chain reaction of negative consequences. The European Business Association appeals to the Verkhovna Rada of Ukraine and the President of Ukraine to refrain from supporting this initiative, which in the proposed form looks like a dangerous, one-sided and unfair measure, rather than a well-thought and balanced solution. At the same time, the EBA will study the document in more details and will provide additional comments and suggestions from business, if any, including proposals on the ways to combat tax evasion schemes.

There is no doubt that canceling the cap for the SSC base will automatically lead to a significant increase in business expenses. Thus, the Ministry of Social Policy expects to receive an additional UAH 10 billion in SSC – respectively, the costs of business for mandatory payments will increase by this amount.

It is scandalous that it would be bona fide taxpayers, paying wages openly without employing dodgy schemes, who would contribute a bulk of these additional revenues to the budget. De facto, hiding behind “fight with the grey salaries” slogan, the authorities are introducing a selective taxation of bona fide taxpayers, who have nothing to do with the grey salaries.

Association believes that an increase in the tax burden on bona fide payers is a most unfair way to recover the losses suffered by the fisk because of the existence of easily available tax evasion schemes. The state must really focus on combating tax fraud, rather than try to imitate the fight against it.

We are convinced that the measures proposed by the Ministry of Social Policy will further encourage unscrupulous taxpayers to continue with their shady schemes, since the Ministry’s proposals send an unequivocal message that any fiscal losses cased by the tax fraud will be recovered at the expense of honest taxpayers.

As the Association has pointed out earlier, for such industries as education, services, and IT where salaries make up the lion’s share of costs, increase in SSC will drive up the business costs and prohibit creation of new jobs with legal wages, giving an additional impetus to the Ukrainian employees outflow. It is also highly probable that an increase in SSC costs will result in reduction in wages, which in turn will trigger a decrease in revenues from military tax and personal income tax (a decrease in the personal income tax will negatively impact local budgets revenues).

Therefore, the Association believes that the measures proposed by the Ministry will be counterproductive in terms of combating “shadow” wages and may launch a chain reaction of negative consequences. The European Business Association appeals to the Verkhovna Rada of Ukraine and the President of Ukraine to refrain from supporting this initiative, which in the proposed form looks like a dangerous, one-sided and unfair measure, rather than a well-thought and balanced solution.

At the same time, the EBA will study the document in more details and will provide additional comments and suggestions from business, if any, including proposals on the ways to combat tax evasion schemes.