Obligatory for all income declaration must be introduced in Ukraine. According to incomes and fees minister Oleksandr Klimenko, it will become an equalizing mechanism, which will enable to lift the load on the salary fund and balance state finances after legalization of envelope wages.
"This is the most important draft bill to adopt in order to balance the state finances and solve pending problems," Klimenko said.
The minister underlined that heavy load on the salary fund suppresses the development of the country and hurts its ability to compete comparing to other countries.
"To decrease the load we must offer a compensatory mechanism. I support the idea of obligatory income declaration," he noted.
At the same time he admitted that the initiative to reduce single social fee and to reduce the load on the salary requires further discussions.
As for current revenues, the minister noted that unshadowing enables to provide proper budget revenues. "We are working on unshadowing of country's economy and thanks to our efforts budget receives stable revenues," he underlined.
Moreover, Klimenko reminded that tax bodies use risk-based system to determined risks of tax evasion. As for VAT recovery, the minister says the government already works on implementing automatic refund.
ForUm has decided to ask experts whether Ukrainians are ready to pay taxes individually.
Mykhailo Fryziuk, psychologist:
- Ukrainians have a specific mentality. Speaking generally, our people are not in the humor for self dependent acts, though there are people who respect the state and understand it must be invested in. I think if the draft bill is adopted it will be as in any other country - some people will agree and do it self dependently, while others will continue to ignore it.
At the same time, due to specific attitude of our state, some people consider it unfair to give money to the state and will try to restore justice avoiding taxes. What we need is a state control, understandable conditions and fair scheme for people to understand that income declaration is not something hard or impossible.
Moreover, the state should clearly explain the process. In fact, people pay taxes anyway, but with individual declaration employers will have to pay bigger salaries and people will see how much they pay. However, employers will be tempted not to change the amount of salaries but to make workers pay taxes from the same salary they had before. People will lose money and it may cause a flood of anger.
Oleksandr Okhrymenko, president of Ukrainian analytical center, Ph.D. in Economics:
- If lawmakers reduce income tax down to 10% it will help to "white out" salaries, as it will be more profitable for business to pay a reported salary than hide the money.
As far I understand the Tax Service wants to introduce obligatory for all income declaration to find those who work without a contract or get envelope wages. Another goal is to see who has several sources of income. For example, a person has an job and salary and also rents out a real estate. This is an additional income, and the Tax Service is interested in consolidation to see the total income. Thus, if the income tax is reduced to 10%, everybody will be satisfied.
Psychologically, however, Ukrainians are not ready for obligatory for all income declaration. It is hard to accept new things, but in five years everyone will get used to it. Poland, for example, carried out similar reform and it took it seven years to implement it countrywide.
Serhiy Osavoluk, Ph.D. in Economics, IFC project manager "Investment climate in Ukraine":
- Everybody understands that sooner or later we have to accept this, as similar system exists all over the civilized the world. For example abroad, a person who bought a "Mercedes" but declared 100 dollars of income will be for sure visited by a tax inspector, because tax evasion is bad for budget.
On the other hand, the process must be well-thought out for people to feel comfortable around tax inspections - no queues, not stress. Electronic form of declaration, for example, is a good variant. Moreover, some tax duties should be reduced for certain categories of citizens and so on.
Oleksand Garan, political scientist, professor of politology in Kyiv Mohyla Academy:
- I am not an economist to estimate the initiative, but as a regular man who receives a salary I can tell you that I have my doubts people will pay taxes faithfully.
First of all, there is very low level of trust in everything: banking system, pension fund, tax system, government, etc. Secondly, to introduce similar changes in the tax system, envelope wages should be liquidated first, and the level of salaries must be corresponding.
People think about how to survive and how to tide over until the next payday. Do you really think that if someone has a chance to save some money he will go to report real taxes? I doubt it.
I admit there will be a category of people who will pay by the book, but it is a very small percent of population, mainly those who have good and stable jobs and treasure their positions.
Moreover, there is no point to compare this initiative with the experience of other countries. Ukraine is a country with its own realities, and in these realities people are no ready to pay taxes self dependently.
Ruslan Pavlenko, economist, political scientist:
- If we seek to reach world standards and call ourselves Europeans, we should not be afraid of the very fundamental principle of any effective economy - functioning tax system. I don't call to jump in feet first. On the contrary, implementation of such innovations will not happen in one or two years. Europe countries, for example, needed 3-5 years to fully accept the principles of obligatory for all income declaration, and in the US it took even longer.
Principles and mechanisms of the initiative must be well-worked-out. The task of the Incomes and Fees Ministry is not to report "introduction of something", but to build economically viable, effective and transparent taxation system where every detail is taken into account, like: 1)who falls under the action of obligatory declaration; 2) what form of reporting to use - electronic, paper-based or combined; 3) where to submit the report - at place of registration or actual residence (30% of employees in the country work far from their official registration place); etc.
In any case, before introducing the new order of declaration, people should be taught how to do it. In other countries there is a whole industry of specially trained workers who help people to file declarations. May be we also should create "state tax consultants" and promote this profession in our country.
In general, the idea is good, but everything will depend on ideology and mechanisms of its realization, as well as terms of implementation.
"This is the most important draft bill to adopt in order to balance the state finances and solve pending problems," Klimenko said.
The minister underlined that heavy load on the salary fund suppresses the development of the country and hurts its ability to compete comparing to other countries.
"To decrease the load we must offer a compensatory mechanism. I support the idea of obligatory income declaration," he noted.
At the same time he admitted that the initiative to reduce single social fee and to reduce the load on the salary requires further discussions.
As for current revenues, the minister noted that unshadowing enables to provide proper budget revenues. "We are working on unshadowing of country's economy and thanks to our efforts budget receives stable revenues," he underlined.
Moreover, Klimenko reminded that tax bodies use risk-based system to determined risks of tax evasion. As for VAT recovery, the minister says the government already works on implementing automatic refund.
ForUm has decided to ask experts whether Ukrainians are ready to pay taxes individually.
Mykhailo Fryziuk, psychologist:
- Ukrainians have a specific mentality. Speaking generally, our people are not in the humor for self dependent acts, though there are people who respect the state and understand it must be invested in. I think if the draft bill is adopted it will be as in any other country - some people will agree and do it self dependently, while others will continue to ignore it.
At the same time, due to specific attitude of our state, some people consider it unfair to give money to the state and will try to restore justice avoiding taxes. What we need is a state control, understandable conditions and fair scheme for people to understand that income declaration is not something hard or impossible.
Moreover, the state should clearly explain the process. In fact, people pay taxes anyway, but with individual declaration employers will have to pay bigger salaries and people will see how much they pay. However, employers will be tempted not to change the amount of salaries but to make workers pay taxes from the same salary they had before. People will lose money and it may cause a flood of anger.
Oleksandr Okhrymenko, president of Ukrainian analytical center, Ph.D. in Economics:
- If lawmakers reduce income tax down to 10% it will help to "white out" salaries, as it will be more profitable for business to pay a reported salary than hide the money.
As far I understand the Tax Service wants to introduce obligatory for all income declaration to find those who work without a contract or get envelope wages. Another goal is to see who has several sources of income. For example, a person has an job and salary and also rents out a real estate. This is an additional income, and the Tax Service is interested in consolidation to see the total income. Thus, if the income tax is reduced to 10%, everybody will be satisfied.
Psychologically, however, Ukrainians are not ready for obligatory for all income declaration. It is hard to accept new things, but in five years everyone will get used to it. Poland, for example, carried out similar reform and it took it seven years to implement it countrywide.
Serhiy Osavoluk, Ph.D. in Economics, IFC project manager "Investment climate in Ukraine":
- Everybody understands that sooner or later we have to accept this, as similar system exists all over the civilized the world. For example abroad, a person who bought a "Mercedes" but declared 100 dollars of income will be for sure visited by a tax inspector, because tax evasion is bad for budget.
On the other hand, the process must be well-thought out for people to feel comfortable around tax inspections - no queues, not stress. Electronic form of declaration, for example, is a good variant. Moreover, some tax duties should be reduced for certain categories of citizens and so on.
Oleksand Garan, political scientist, professor of politology in Kyiv Mohyla Academy:
- I am not an economist to estimate the initiative, but as a regular man who receives a salary I can tell you that I have my doubts people will pay taxes faithfully.
First of all, there is very low level of trust in everything: banking system, pension fund, tax system, government, etc. Secondly, to introduce similar changes in the tax system, envelope wages should be liquidated first, and the level of salaries must be corresponding.
People think about how to survive and how to tide over until the next payday. Do you really think that if someone has a chance to save some money he will go to report real taxes? I doubt it.
I admit there will be a category of people who will pay by the book, but it is a very small percent of population, mainly those who have good and stable jobs and treasure their positions.
Moreover, there is no point to compare this initiative with the experience of other countries. Ukraine is a country with its own realities, and in these realities people are no ready to pay taxes self dependently.
Ruslan Pavlenko, economist, political scientist:
- If we seek to reach world standards and call ourselves Europeans, we should not be afraid of the very fundamental principle of any effective economy - functioning tax system. I don't call to jump in feet first. On the contrary, implementation of such innovations will not happen in one or two years. Europe countries, for example, needed 3-5 years to fully accept the principles of obligatory for all income declaration, and in the US it took even longer.
Principles and mechanisms of the initiative must be well-worked-out. The task of the Incomes and Fees Ministry is not to report "introduction of something", but to build economically viable, effective and transparent taxation system where every detail is taken into account, like: 1)who falls under the action of obligatory declaration; 2) what form of reporting to use - electronic, paper-based or combined; 3) where to submit the report - at place of registration or actual residence (30% of employees in the country work far from their official registration place); etc.
In any case, before introducing the new order of declaration, people should be taught how to do it. In other countries there is a whole industry of specially trained workers who help people to file declarations. May be we also should create "state tax consultants" and promote this profession in our country.
In general, the idea is good, but everything will depend on ideology and mechanisms of its realization, as well as terms of implementation.
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