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Grey salaries may become more common with increased burden on the Wage Fund during the crisis

24/ 07/ 2020
  As reported by the media, the Government plans to increase the minimum wage to 5 thousand hryvnias this year. Besides, the budget for 2021 is estimated based on the minimum wage of 6-6.5 thousand hryvnias. Thus, according to the EBA business community, such plans sound the alarm that the course changes to increasing the tax burden on wages. According to the business, this controversial course will not bring any tangible positive consequences for companies and citizens. On the contrary, such a course can even worsen the current situation. It is important to emphasize that with the implementation of the announced plans, the maximum size of the single social contribution base will increase significantly. At the same time, the most significant blow will be inflicted on law-abiding taxpayers who pay transparent wages to their employees. There are also well-founded fears that increased tax pressure on the wage fund will stimulate the growth of the grey salary sector given the economic crisis. After all, the increase in the shadow sector will create non-competitive conditions for conscientious taxpayers, and in the worst case - will lead to increased pressure on government agencies as the honest taxpayers. Thus, due to the increase in the tax burden on wages, one can expect a decrease in official employment, a reduction in the wage fund and, ultimately, a reduction in budget revenues. Therefore, such consequences can hardly be considered positive. In view of the above, we emphasize that the European Business Association is consistent with its position on the inadmissibility of increasing the tax burden on wages and the need to reduce such a burden. Therefore, in case of the minimum wage increases, the community will insist on at least a proportional reduction in the maximum size of the single social contribution accrual base to prevent an increased burden on honest payers. The European Business Association looks forward to a constructive discussion on the terms and specific mechanisms for further reducing the tax burden on wages, which would be aimed at encouraging taxpayers to pay taxes and mandatory payments, as well as at preventing tax evasion schemes.

As reported by the media, the Government plans to increase the minimum wage to 5 thousand hryvnias this year. Besides, the budget for 2021 is estimated based on the minimum wage of 6-6.5 thousand hryvnias.

Thus, according to the EBA business community, such plans sound the alarm that the course changes to increasing the tax burden on wages.

According to the business, this controversial course will not bring any tangible positive consequences for companies and citizens. On the contrary, such a course can even worsen the current situation.

It is important to emphasize that with the implementation of the announced plans, the maximum size of the single social contribution base will increase significantly. At the same time, the most significant blow will be inflicted on law-abiding taxpayers who pay transparent wages to their employees.

There are also well-founded fears that increased tax pressure on the wage fund will stimulate the growth of the grey salary sector given the economic crisis. After all, the increase in the “shadow” sector will create non-competitive conditions for conscientious taxpayers, and in the worst case – will lead to increased pressure on government agencies as the honest taxpayers.

Thus, due to the increase in the tax burden on wages, one can expect a decrease in official employment, a reduction in the wage fund and, ultimately, a reduction in budget revenues. Therefore, such consequences can hardly be considered positive.

In view of the above, we emphasize that the European Business Association is consistent with its position on the inadmissibility of increasing the tax burden on wages and the need to reduce such a burden.

Therefore, in case of the minimum wage increases, the community will insist on at least a proportional reduction in the maximum size of the single social contribution accrual base to prevent an increased burden on honest payers.

The European Business Association looks forward to a constructive discussion on the terms and specific mechanisms for further reducing the tax burden on wages, which would be aimed at encouraging taxpayers to pay taxes and mandatory payments, as well as at preventing tax evasion schemes.

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