№2(13)(2013)

From January 1 there is one more tax in Ukraine - Art. 265 of the Tax Code entered into force, under which individuals, legal entities and non-residents will pay tax on residential property. Tax was postponed twice, from January 1, 2012 till July 1, 2012, and then till January 1, 2013.

Property tax got a specific introduction date, more or less clear outlines, and STSU explained who and how is to pay the tax:

- Taxed: houses, annexes, houses of farmsteads, apartments, cottages and rooms in multifamily apartments;

- Are not subjected to taxation: dormitories, summer or garden homes, but not more than one per person, housing far big families and families with adopted children, but with not more than one property item per family.

The Code establishes exemption: for individuals - apartment with living space of 120 square meters and houses of no more than 250 square meters are not taxed.

If person owns a number of residential immovable, exemption applies only to one of them, and others are taxable. Living space of several immovable is not summed up. If, for example, area of two apartments (or flats and houses) is up to 120 square meters, one of them is taxable. Individual can independently choose by own choice to pay tax on residential property for any of belonging items.

If individual owns one apartment and garden house, then exemptions is applicable. If individual owns two garden houses, one of them is taxed.

Tax rate per square meter is defined as follows:

- At rate of 1% of the minimum wage for beginning of reporting year (in 2013 - 11.47 UAH) for apartments with living space of 240 square meters and houses with living area ​​less than 500 square meters;

- At rate of 2.7% of the minimum wage at beginning of reporting year (in 2013 - 30.79 UAH) for apartments with residential area of ​​over 240 square meters and houses with living area of ​​500 square meters.

Tax is paid by individuals once a year. From April to July 2013 individuals should receive a notice about the tax amount from tax authorities according to residential property location. Individuals must pay the tax within 60 days from receiving notice. Delay for 30 days draws penalties in amount of 10% of assessed tax, more than 30 days - 20% of assessed tax.

Individuals with low incomes can apply to tax office and ask for installment plan, decision on availability (non availability) will be taken on individual basis.

Legal entities should count themselves the annual tax amount on the basis of documents confirming ownership of residential area on object and size of tax rates on January 1 of reporting year. Till February 1 of reporting year they submit declaration to tax authorities in location of taxation object (the Ministry of Finance approved the declaration form by Order from 25.12.2012, № 1408).

Today property is a significant indicator of tax payer’s income and can clearly identify his real income, and contrast between individual wealth and general poverty today is especially striking. Therefore, such an important tool, as property tax has got many tasks to solve: filling local budget, setting social justice, deterring speculative prices marking up, etc. Need to introduce such tax in Ukraine was long overdue.

However classical Ukrainian approach to resolve all on track and to correct mistakes in process of tax rules implementation, but not before they are adopted, plus lack of developers professionalism, in my opinion will not allow property tax carrying out its tasks in present form.

1. Counting property tax only by meters is not fair!

One of the main functions of taxation, and property tax in particular, is social justice. According to international practice, when determining rate of property tax, not only square meters of housing are taken into account, but also its value. Special feature of the Ukrainian property tax is that cost of housing does not play any role in tax calculating. So owner of apartment in luxury house will have to pay as much as owner of usual housing. And given that cost per square meter in the capital of Ukraine is very different from price of same meter in far village, there can be no question about social justice.

2. Undue benefit provided for commercial (non-residential) immobility!

Object of taxation under property tax in most European countries is total, not just residential immobility. This is logical and correct.

Commercial immobility is buildings, used for commercial activity with subsequent permanent income or capital gains, rental income, investment income. Commercial property includes office buildings, industrial facilities, hotels, shopping centers, shops, farms, warehouses and garages.

The commercial property market in Ukraine is quite significant, in addition, it brings considerable income for owners and could be a significant source for local budgets.

Why commercial property, unlike its "close relative" - residential property, is excluded from the taxation object? Question remains unanswered!

Although perhaps developers rightly assumed that important owners of commercial property in Ukraine are PM and they are unlikely to support initiative of the real estate tax?

3. The way you name a house, the way you pay the tax!

According to art. 265 of the Tax Code, property taxes are paid for residential property, that is, building of housing, cottages and houses. These include:

1) house for living - capital building for permanent residence. In turn, they are divided into apartment houses and farmsteads;

2) house for living in garden area - house, located on separate area and consisting of additional (non-residential) and major (residential) premises;

3) annexes to house for living - part of house outside framework of its supporting exterior walls, which has one or more common capital walls with house;

4) garden house - does not respond standards for residential buildings, only for summer use;

5) holiday home - a home for a country holiday;

6) cottage - small house temporary or permanent residence with gardens;

7) apartment -  separate area in house for living that is suitable for year-round use;

8) room in communal apartment - separate room for living in apartment where  live two or more inhabitants.

Owners will pay property tax for these immobility. But for every rule there are exceptions.

Property not taxable:

- Garden cottage or home (one object for taxpayer);

- Residential immobility in property of state or local communities;

- Dormitory (housing for collective living, including homes for students, seniors, workers and employees, children, disabled, etc.);

- Homes for living of family type (family, which brings up at least five children without care or orphans);

- Residential housing (up to one object per family), which belongs to receiver and large families, who raised three children;

- Residential housing in zones of alienation and mandatory evacuation.

And here the question arises, how and who will evaluate what is built. House (which is taxable) or holiday home (not taxable), house for living in garden area (which is taxable), or garden house (not taxable). It's one thing when goes on apartment, and other, when - on holiday buildings. At the current corruption level, in my opinion, it would be not difficult for owner of a three storey cottage to sign it as a garden house.

The main decision regarding tax rates and exemptions will be made at local level by local authorities. Imagine a juicy situation where on the one hand there is an elected local authority, which is closely associated with all local government agencies, and on another - property belonging to officials and employees of same government and controlled entities.

It’s almost unreal to avoid misuse in the case.

4. Absence in registry is one way to remain undetected.

Legislation provides that tax on real property, other than land, for individuals, including individual entrepreneurs, is calculated by the state tax service at the residential property location.

Database of homeowners who have to pay property taxes is formed according to general data of the State Registration Service and the Bureau of Technical Inventory.

Relevant information in electronic form have been accumulated in the State Registration Service and the Bureau of Technical Inventory only since 2003-2004. More information may be stored in paper form at the BTI, and should be transferred in electronic media to deliver at STS. It is unknown who will do it.

A loophole opens for citizens to remain undetected. If registry is missing information on property right, tax office can not determine tax base and send a "chain letter" with assessed tax.

From the above it is clear that new tax will inevitably create a lot of conflict, and add corruption features. In addition, main burden will fall on law-abiding middle-class, and owners of multi-storey houses, factories and plants will not remain in losers. Then will happen as usual - were planning luxury tax, but got a tax on poverty.