Budgetary costs of value added tax will offset by sales tax. Consumer loses.
Minincomes in forced pace continues to reform taxation. Following the adoption of the law on transfer pricing and active promotion of initiatives related to reducing burden on wage fund, the agency published a draft law "On Amendments to the Tax Code of Ukraine to further improve the value-added tax". According to the Senior Manager, Tax and Legal Consulting of LLC "KPMG-Ukraine" Victor Shekera, published document can not be attributed to ordinary shocks that taxpayers feel almost daily due to changes in certain articles of the Tax Code, explanations and letters from STS and Minincomes. Since the project is making drastic and far-reaching changes in the VAT regime.
Bifurcation of VAT or extra chores for taxpayers.
Lawyer from Law Firm “Kisil & Partners” Tatiana Matsyuk among the most important innovations called abolition of the rule of "first event" for VAT, reduced VAT rate to 9% from 1 January 2014, actual introduction of sales tax at the rate of 1-2% and revocation of privileges for agricultural producers. A significant reduction in the VAT rate was the most prominent and resonant innovation. But this, at first glance obvious bonus for businesses entering the so-called hidden additional rates. So - instead of a value added tax business get two, each of which involves keeping a separate account and formation of tax returns.
"The principles of calculation and payment of fixed VAT to the budget remained constant: company will deduct the tax credit from the amount of tax liability, a positive difference to pay to the budget and negative - to claim damages - says senior lawyer Svetlana Yazikova from Arzinger Law Office. - VAT charged at an additional rate to be paid to the budget regardless of amount of tax credit. That is, the Company can not reduce the tax credit with additional VAT payable" According to interlocutor from LIGABiznesInform, proposed changes clearly read the need to ensure replenishment under any circumstances, because the most significant economic consequence of these reforms will be guaranteed from receiving of 1-2% of the total value of all taxable transactions. In fact, business can lower the level of deductions only by reducing its turnover.
"If the VAT and income tax at a certain structuring activity can hardly be paid to the budget, the sales tax will be paid regardless of entity. Therefore, introduction of VAT will likely lead to increased tax burden "- concludes Tatiana Matsyuk. Accordingly, state budget will receive an effective compensatory mechanism that allows you to reverse losses from reduction of other taxes and fees. In particular, lawyer of AK «Cononnov and Sozanovskiy» Irina Pavluk reminds about upcoming bills aimed at reducing the burden on wage fund and settlement of single social tax (Single Social Contribution). "They offer a differentiated reduction of income tax for individuals, including Single Social Contribution to the single tax for taxpayers of first and second groups, as well as reduction of the Single Social Contribution to 18%, - said the interlocutor from LIGABiznesInform. - Since these changes will lead to decrease in revenue, the emergence of bill to compensate for loss of data is legitimate". Minincomes, if implementing the planned reforms of the VAT, expect to increase budget revenues by 22 billion UAH.
For many businesses fiscal burden will only increase.
Experts are ambiguous about impact from proposed innovations in different areas of business. "Burden on businesses that currently pay VAT at a rate of 20% is potentially reduced. This is especially felt by company, the amount of tax liability of which exceeds the amount of tax credit - says Svetlana Yazikova. - But businesses with a tax credit more than obligations, however, are faced with increasing pressure". According to interlocutor from LIGABiznesInform new rules are the least favorable for companies that carry out operations at a zero rate (export and re-export of goods, international transport). These taxpayers will pay to the budget 1% of "additional" VAT from sales and will not feel the positive impact on reducing the base rate.
Also the bill coming into force promises to increase tax deductions for exporters who use offshore in their work. "Introduction of an additional 1% VAT for deliveries in jurisdiction with a low tax burden, where the tax rate is less than in Ukraine for 5% or more, have a negative impact on exporters - said Senior Manager, Tax and Legal Consulting LLC" KPMG -Ukraine "Victor Shekera. – Today’s supplies currently use zero rate of VAT. That is why innovation will inevitably lead to increase in the tax burden on export-oriented industries such as metallurgy, chemical and food industries".
New rules will be unprofitable for farmers. "Before, they were exempted from VAT, and all the positive difference between tax liabilities and tax credits could be used for their own needs - says Tatiana Matsyuk. - The project offers farmers to give 10% from such a positive difference to the budget. Due to volume of agricultural operations in our country, this 10% will additionally generate a significant amount of budget funds".
Possible impact of innovation on business and budget.
And if only a few businesses will feel the tax reduction, the trouble with tax reporting will be added to all. According to Victor Shekera the need to run a separate tax accounting and tax returns with formation of primary (9%) and more (2%) VAT rates significantly complicate the life of enterprise. In this case, regulators can use errors in recording and reporting under new rules as an excuse to penalties and additional charges of VAT.
Goods will not drop in prices.
Given that the value of all goods and services includes VAT, most exciting issue for citizens today is the relationship between reduction of tax and price level in retail. "Since VAT is indirect, actual load from its payment is always on the end user - said a senior lawyer Svetlana Yazikova from Arzinger Law Office. - It would be logical to assume that its reduction will reduce prices of goods and services. However, such effects seem unlikely in current economic situation and taking into account additional VAT turnover payable under any circumstances".
Since the reduction of VAT to 9% will be accompanied by introduction of an additional rate of 1-2%, which is levied at all stages of distribution, retail prices may remain the same.
In turn, the lawyer from AK «Cononnov and Sozanovskiy» Irina Pavluk emphasizes that formation of value of goods and services will affect the number of links in the chain of manufacture or provision, as the new rate of turnover in each stage will increase cost by 1-2%.
Lawyer from Law Firm "Kisil & Partners” Tatiana Matsyuk does not rule out possible losses from introduction of VAT, businesses will try to compensate by end users while maintaining profitability by increasing value of goods and services. Also, according to Irene Pavluk, prices depend on internal solutions of providers, as it was during the time when consultancy and related services were released from VAT. While not all companies have reduced the cost of their services by 20%, therefore, reduction of VAT likely virtually will have no effect on consumer spending.
