Changes in iron ore rent should be coherent with future comprehensive tax law reform
The European Business Association once again draws attention to the importance of following the principle of stability of the tax system. Now, within the working group of the Verkhovna Rada on taxes and finances, there are active discussions of draft laws № 1210 and № 1210-1 regarding the revision of the provisions on the rent for the use of subsoil for the extraction of iron ore.
We welcome the authorities’ readiness for an open dialogue with business; however, we emphasize that such a dialogue should be effective. At the same time, the result should be a compromise in a way that demonstrates the respect of the state to the existing procedures.
Business supports the announced by the Prime Minister of Ukraine intentions to begin comprehensive tax reform in 2020. At the same time, certain proposed changes to the draft laws №1210 and 1210-1 (in particular, regarding rent for the use of subsoil), in the opinion of business, are actually ahead of events, significantly transforming the tax landscape for individual business segments now, that is, even before the presentation and discussions on planned reform. Therefore, for the country to have high-quality and stable tax rules, proposals for changes in the taxation procedure for “resource” payments should be considered precisely when planning the expected tax reform.
Now there is a budget process. Note that the rush to implement the proposed rules can damage tax revenues both in the short and in the longer term.
Detailed calculations on a significant increase in the tax burden were sent to the State Tax Service and the Verkhovna Rada Committee of Ukraine for discussion and elaboration of a balanced compromise. Possible negative consequences of such a tax increase were also discussed.
Simultaneously, as a compromise solution, temporarily for 2020, there can be discussed the option of increasing the rate for iron ore from 8% to 10% and establishing a minimum profitability threshold at the level of 150% of the discount rate by the National Bank of Ukraine, which will increase revenues to the state budget and there will be no disastrous consequences for business.
As always, the business remains open to dialogue and the search for compromise options.
The European Business Association calls on the relevant VRU Committee and the State Fiscal Service of Ukraine to create a strategic group to draft amendments to Section IX of the Tax Code of Ukraine and include representatives of the business community to develop high-quality tax legislation in the country.