Tax Regulation (#07-08 July-August 2014)

With the support ofTax Regulation

 “God save you from living in the times of change” is the phrase attributed to ancient Chinese philosopher Confucius, who lived before Christ. However, nothing has changed in several millennia either. Ukrainian business faces poor luck and continues to live in times of change.

The Ministry of Revenue and Taxes of Ukraine existed a bit longer than one year with the status of the national executive authority in charge of state policy in the area of taxation under coordination by the Cabinet of Ministers of Ukraine. Now, a new entity with the same powers will be established — the State Fiscal Service under the Ministry of Finance. The relevant Resolution No.160 of the Cabinet of Ministers of Ukraine was approved on 21 May 2014. The regulation governing operation of the newly created agency will be signed soon. According to the statements of the Ministry’s management, the structure of the Fiscal Service will include the following units: taxes and charges, customs, and the tax police. The maximum number of employees of the State Fiscal Service has been set at 56,640 people. The Ministry of Revenue and Taxes had approximately the same number of employees.

“We all understand that probably the easiest way is to change the sign on the door, but the most difficult objective is to achieve real change in tax relations between the state and businesses”, — Yaroslav Romanchuk, managing partner of International Legal Center EUCON,  said. Taxpayers believe that the main problem is the fiscal burden exercised by the government, the high level of corruption of the tax authorities, and the complexity of tax administration. The above factors result in the shadow economy and the lack of incentives for economic development and investment.

It is, therefore, important not only to reorganize the controlling agency, but also to reform the tax system, Mr. Romanchuk noted. The reform should be aimed at restoring confidence between the government and taxpayers.

In order to develop a concept of reforms of the tax system, the Ministry of Economic Development and Trade established working groups of experts and specialists in the field of economics and tax law, who attempted to identify the priority issues that need to be addressed. “The commissions included experts from the International Legal Center EUCON, and I led the group that worked on development of the measures to restore confidence and to build partnership between tax authorities and taxpayers”, — Mr. Romanchuk said. In his opinion, such measures should include:

— reducing the number of control and auditing measures, abolition of plans for additional charges;

— introduction of personal responsibility of tax officials for making unlawful decisions;

— introduction of mediation procedures that would enable to reduce the number of court appeals;

— improving VAT administration procedures, and securing automatic compensation of the tax.

He emphasizes that the above aspects were included in the concept of the tax reform to be considered by the Cabinet of Ministers of Ukraine.

Besides, a number of measures were suggested to further harmonize accounting and taxation, including the use of financial statements for purposes of calculating the income tax base with a limited number of adjustments, and simplification of the tax system by reducing the number of taxes and duties.

“We expect that the reform of the tax system, which should take place in 2014-2015, will enable Ukraine to develop a competitive economy and to make it attractive for investors”, Mr. Romanchuk said hopefully.

The discussion continues about the tax police that is planned to be transformed into the Financial Investigation Service. If the relevant regulation is approved, the tax police will be removed from the structure of the fiscal service.

On 13 June 2014 a meeting of the Council of Entrepreneurs under the auspices of the Cabinet of Ministers of Ukraine was held, which discussed the concept of the Financial Investigation Service, the Draft Act On Prevention and Combating Economic Crimes and Financial Control.

The meeting was chaired by Leonid Kozachenko and attended by the First Deputy Chairman of the State Fiscal Service Volodymyr Khomenko, the President of the Academy of Financial Management Tatiana Efimenko, the Deputy Chairman of the Committee of the Verkhovna Rada of Ukraine on Taxation and Customs Policy, Oksana Prodan. Yaroslav Romanchuk, who is a member of the Council of Entrepreneurs under the Auspices of the Cabinet of Ministers of Ukraine, gave a presentation on the need to dramatically reform the system of combating economic crimes in Ukraine, on introducing transparent rules and liability on the part of controlling authorities. “Currently, our company’s experts are engaged in the operation of the working groups of the Cabinet of Ministers of Ukraine to improve tax legislation, because stabilization of the financial situation in Ukraine will depend on what we can accomplish”, he concluded.

The Ukrainian Journal of Business Law

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