22 February 2011

New Tax Code - 2011 Ukraine

Last week the BBCU held a meeting in Kyiv to discuss the latest Tax Code introduced by the government. An excellent presentation was given by: Olena Makeieva, General Director, Aksonova & Associates, Kyiv, Ukraine.

One of the problems in Ukraine, and I'm sure people working in government fail to understand this, is that the government introduce new laws approved by the parliament and then just expect the population to understand everything. There is very little dissemination of information to help people. "Its your problem".....is the usual response from any government employee.

It would appear that the new tax code will have the reverse effect intended by the government.
LESS people will pay tax than before. The group People First Foundation explain:

The new taxation code for 2011 has delivered irrefutable growth; unfortunately it is localized solely in the non-taxable and unregulated shadow sector. Experts profess that close to 50 percent of Ukrainian salaries are now distributed under the table, saving enterprises up to 20 percent in wage expenses by way of pilfering billions from the state budget coffers. According to the estimates of the Ukrainian tax administration, 2011 will see a million individual taxpayers in Ukraine; 800,000 less than three years ago. The vast majority of these businesses are not dissolving, but merely slipping below the tax administration radar – evasion is survival under a tax code that directly persecutes the small-and-medium enterprise sector, heralding bankruptcy for the many.The Donestk region and other areas in the eastern regions of Ukraine have suffered the heaviest losses, where anticipation of the new tax code caused entrepreneurs to give up their enterprises en masse, two months prior to the enactment of the code.

The Ukrainian banking system lost $6.1 billion in withdrawals during the last four months of 2010 - accounting for approximately 80 percent of the total volume of transactions for the year.

When considering this rush of withdrawals alongside the disappearance of 44 percent of the small-and-medium enterprise sector, it is not unreasonable to assume that the shadow economy is soon to receive a boost of activity. With such a weight of financial clout resting in the shadows we can only wonder as to the viability of governmental economic policy.

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