The President’s Office proposes to increase the tax on mineral extraction

Researchers from Ukraine Economic Outlook, the Future Institute and the Advanter Group, under the coordination of the deputy head of the President's Office Rostislav Shurma, developed the New Radical tax reform

Researchers from Ukraine Economic Outlook, Ukrainian institute for the Future and the Advanter Group propose to increase the taxation of environmental pollution and mineral extraction, within the framework of the developed New Radical tax reform, under the scientific leadership coordination of deputy head of the President’s Office Rostislav Shurma.

Mykhailo Kuhar, an economist at Ukraine Economic Outlook and one of the program’s authors, reported about the details of the developed reform program on his Facebook page.

Among other authors – Anatoly Amelin from the Ukrainian institute for the Future and Andriy Dligach from Advanter Group. The authors hope that the reform will be implemented in 2023.

“The accumulated problems of the present taxation system have become even more acute since the beginning of the war, while tax officials refuse to meet business and continue fiscal terror in order to declare efficiency. At the same time, such a tax strategy has only an effect of a short-term increase in revenues, while businesses continue to close, go into the shadows or migrate out of the country,” the report informs.

The proposal of the reforms’ authors is as follows:

1. reduction of taxes on labor, basic consumption and investment;
2. increase in taxation of environmental pollution, mining of minerals and consumption of cigarettes, alcohol, petroleum products;
3. minimization of discretion, including the replacement of IT (income tax) with CWT (Capital Withdrawal Tax);
4. introduction of a set of tools for the transition to a cashless economy;
5. transition to the 10-10-10-3 taxation model.

The 10-10-10-3 taxation model proposes setting a rate of 10% for VAT, 10% for personal income tax, 3% – military service, 10% – Capital Withdrawal Tax, 5% – income tax.

“Extrapolating the proposed changes for the entire year 2022, in the case of the new tax system starting on January 1, 2022, taking into account the war, the budget would receive about UAH 920 billion, or only UAH 300 billion less compared to the current tax system,” considers Mykhailo Kuhar.

Thus, according to the researchers, due to a significant reduction in direct taxes, the state would be able to reduce the expenditure part by UAH 350 billion. As a result, the expenditure part would amount to about UAH 2,000 billion.

Thus, the nominal fiscal budget gap would amount to UAH 1,078 billion.

“As a result, due to the specified compensators, the budget will be able to receive an additional 186 billion UAH, which will reduce the overall fiscal calculation,” the researchers summarize.

As GMK Center reported earlier, the National Bank of Ukraine predicts a 37.5% decline in the country’s GDP in the second half of the year compared to the same period in 2021. In particular, the decline will be 37.5% in the third quarter, and 39.3% in the fourth.