Introduction of a progressive tax scale will lead to an increase in demand for “shadow” pay

20/ 02/ 2020

This conclusion was reached by experts of the EBA Tax Committee after analyzing the draft Law No. 2758, which proposes the introduction of a progressive scale of personal income tax. Members of the Association do not support the proposed increase in the tax burden on wages, which will impact negatively law-abiding businesses. With the introduction of a progressive scale, business costs will increase substantially, and the negative consequences of increasing the tax burden can be both an increase in the value of goods and services of honest companies, as well as the loss of highly qualified personnel. At the same time, according to experts of the Association, the introduction of a progressive taxation scale will lead to an increase in the demand for shadow pay, which will give additional benefits to unfair employers. As a result, there is a situation where the business environment is complicated for honest business, but the shadow sector, where different tax evasion schemes are used, remains unaddressed. “The Association has taken a consistent stance on the need to reduce the payroll tax burden. This can be achieved through prudent changes to the legislation, which should be aimed at both encouraging bona fide payers and preventing tax evasion schemes, ”commented Svitlana Mykhailovska, Deputy Director for Advocacy of the European Business Association. It should be reminded that draft law # 2758 was registered in the Verkhovna Rada on January 16, 2020. It proposes to introduce new personal income tax rates depending on their size: up to 10 minimum wages are proposed to leave the current rate of 18%; more than 10 minimum wages but not more than 20 minimum wages - 36%, and for wages exceeding 20 monthly minimum wages the tax rate will be 54%.

This conclusion was reached by experts of the EBA Tax Committee after analyzing the draft Law No. 2758, which proposes the introduction of a progressive scale of personal income tax.

Members of the Association do not support the proposed increase in the tax burden on wages, which will impact negatively law-abiding businesses. With the introduction of a progressive scale, business costs will increase substantially, and the negative consequences of increasing the tax burden can be both an increase in the value of goods and services of honest companies, as well as the loss of highly qualified personnel.

At the same time, according to experts of the Association, the introduction of a progressive taxation scale will lead to an increase in the demand for “shadow” pay, which will give additional benefits to unfair employers. As a result, there is a situation where the business environment is complicated for honest business, but the shadow sector, where different tax evasion schemes are used, remains unaddressed.

“The Association has taken a consistent stance on the need to reduce the payroll tax burden. This can be achieved through prudent changes to the legislation, which should be aimed at both encouraging bona fide payers and preventing tax evasion schemes, ”commented Svitlana Mykhailovska, Deputy Director for Advocacy of the European Business Association.

It should be reminded that draft law # 2758 was registered in the Verkhovna Rada on January 16, 2020.

It proposes to introduce new personal income tax rates depending on their size: up to 10 minimum wages are proposed to leave the current rate of 18%; more than 10 minimum wages but not more than 20 minimum wages – 36%, and for wages exceeding 20 monthly minimum wages the tax rate will be 54%.