Yuriy Syvytskyi, Chairman of the Board of the Software Ukraine Association and member of the Ukrainian Business Council, has prepared a column for Interfax.
It is generally accepted that lower taxes make things easier for businesses and citizens. This is true. However, there is another component that everyone forgets or remains silent about: the opaque distribution of collected taxes and the total distrust of the government by businesses and citizens. If this model is not changed, the government will continue to try to collect more, while businesses and citizens will continue to evade payment.
We recently discussed the issue of excessive payroll taxation in an expert circle, with the participation of representatives from the relevant committee, specialists from the Office of Simple Solutions, experts from analytical centers, and representatives of leading business associations.
The massive burden on the payroll fund and the opaque distribution of collected taxes have led to colossal non-payments. According to the latest data, tax and fee evasion during salary payments amounts to 60-230 billion hryvnias annually, and annual budget losses from this reach 24 to 94 billion. Currently, according to various estimates, the level of shadow wages is 33-50%.
This is not surprising, as Ukraine's payroll tax burden of 41% exceeds that of a significant number of developed countries. For example, the USA (31.7%), Japan (32.6%), Britain (30.9%), Canada (30.9%), Australia (28.6%), South Korea (22.6%), Israel (22.1%), Switzerland (21.8%), Mexico (20.4%), New Zealand (18.1%), and many others, as well as a significant number of developing countries.
Such a burden provokes businesses to try to "optimize" taxes. But let's consider what causes tax non-payments and the concealment of real income. Besides the fact that taxes are excessively high, it is also unknown who decides how they will be distributed. Instead of making the process of distributing collected taxes transparent and understandable, the government is pursuing a stricter fiscal policy, giving carte blanche to controlling and punitive bodies that demand even more money. The society is caught in a "spiral of distrust," which is exploited by unscrupulous people working in government and law enforcement agencies.
This situation can and must be avoided. To do this, the functions of the state need to be reduced. It has long been proven that the state is a poor owner, so a significant portion of assets should be transferred either through concessions, public-private partnerships, or sold off. This will allow for a reduction in the tax burden.
A reduction in budget expenditures can also compensate for this decrease. During the meeting, it was agreed that the costs of maintaining government bodies would at least remain at the same level as last year, but I am in favor of continuing this reduction. This will eliminate the need for high taxes, boost business activity, and simplify tax control. In this case, various fiscal-punitive structures are reduced – their services simply cease to be needed.
To make the process of tax collection and control transparent, maximum digitalization is required, removing the so-called human factor – unnecessary intermediaries in the form of inspection bodies.
In general, it is time for Ukraine to think about fundamentally changing the philosophy of tax collection and following the path of developed countries. If you look at the European terminological glossary, you can see that the definition of taxes there is an unfair extraction of funds. More and more countries are thinking about how to correct this injustice. Therefore, a different model is replacing harsh tax pressure, where taxes in the usual sense of the word do not exist.
In the civilized world, there is an increasing shift toward a model where a state with an effective social contract is transitioning or intends to gradually transition to a dividend policy on the assets it owns. The United Arab Emirates, Finland, and Sweden have taken this path. The essence is that a resident of a city or state receives an unconditional income from the use of assets that are at the disposal of a specific community or country.
In such a case, a different economic picture of social development emerges. There is no tax pressure, but people who use these assets to create and achieve business goals and generate profit must pay appropriate taxes for these assets, which go toward the needs of the state and society. In such a model, and on the path to such a model, raising taxes looks absolutely retrograde and takes us back almost to feudal times.
I am far from thinking that Ukrainian citizens will start receiving unconditional income tomorrow, and taxes will disappear as a phenomenon. However, our officials should realize: the tighter the fiscal screws are turned and the higher the taxes, the higher the rates of tax evasion will be. Conversely, a competent and thoughtful tax policy and a reduction in the payroll burden will allow for the gradual legalization of businesses and an increase in budget revenues.