Draft Law of Ukraine

"On Amendment of the Articles 6 and 11 of the Law of Ukraine "On Value Added Tax"

This draft provides for reduction of the value added tax rate from 20 to 0.01 percent. It also envisages freezing value added tax rates for the period of five years.

Introduction of the suggested value added tax rate would mean almost total cancellation of value added tax, because the rate of 0.01 percent to be levied on the value created at the enterprise during the process of economic activity is too miserable and would not produce any effect on the results of activities and the amount of revenue of taxpayers. Under the condition of non-recovery (currently outstanding debts in recovery of value added tax from budget stand at UAH 6.1 billion) of value added tax actually has transformed into the turnover tax and this results, due to the cumulative effect, in its accumulation in the final price when the product is sold. The suggested tax rate will neutralize such negative consequences and allow reducing general level of prices and tariffs on the most goods, works and services.

Taking into account that this draft law is to change, but not to cancel the tax, taxpayers will have to keep tax accounting in conformity with the rules determined by the Law "On Value Added Tax". Taxpayers, the same way as now, will have to calculate tax liabilities, pay the tax to the budget, and prepare and file tax reports. It means, that expenditures of the enterprise for keeping tax accounting, as correspondingly, expenditures of the state to administer the value added tax, will not sustain any changes.

At the same time incomings from collected valued added tax will drastically decrease. This, in its turn, is likely to result in the situation when the state budget will spend on administering value added tax by fiscal bodies much more money than amount of real incomings from tax collected to the budget. In such event value added tax will become irrational from the fiscal point of view. One of the concept principles for introducing any tax is the so-called fiscal aspect, which requires availability of fiscal benefits for the state budget from existence of this or that tax. Taxes failing to comply with the above principle shall be canceled.