How many taxes are in Ukraine?

14 January, 2015 Newsletters

According to the mass media the Prime Minister of Ukraine informed that there are currently 11 taxes left in Ukraine (as for this statement refer, please, to the following publications of “Ekonomicheskiye izvestiia, “Ekonomichna Pravda”, Kontrakty).

It may be assumed that the Prime Minister means taxes and duties as they are now listed in the Tax Code, in Articles 9 and 10:

“Article 9. National taxes and duties

9.1. National taxes include:

9.1.1. corporate profit tax; (1)
9.1.2. personal income tax; (2)
9.1.3. value added tax; (3)
9.1.4. excise duty; (4)
9.1.5. ecological tax; (5)
9.1.6. rent; (6)
9.1.7. duty. (7)

Article 10. Local taxes.

10.1. Local taxes include:

10.1.1. property tax; (8)
10.1.2. single tax; (9)

10.2. Local duties include:

10.2.1. fee for parking of vehicles; (10)
10.2.2. tourist tax.” (11)

In other words, there are 7 general taxes and duties + 4 local taxes = respectively, 11 in total.

But this information does not reflect the actual situation. Thus, for instance, there is also the military fee, established by the Tax Code in para. 16.1. subsection 10 of Section XX “Transitional Provisions”. For some reason it was not included into the list of general taxes and duties according to Article 9. However, this fee is still provided in the Code although it is not listed in Article 9.

However, para. 9.4 of Article 9 envisages that “Establishing of general taxes and duties which are not prescribed by this Code, is prohibited.” In other words, the tax shall be envisaged [somewhere] in the Code, even if it is hidden, in order to establish such tax, and it is not necessary to indicate it exactly in the list of Article 9. Hence, we have even such hidden taxes (duties), at least, a military fee.

Thus, the abovementioned statement of the Prime Minister does not correspond to the fact.

Moreover, the real number of taxes in Ukraine is not so easy to count. As one can see, referring to the list of established taxes in the respective article at the beginning of the Tax Code is not enough. There are also “hidden taxes”.

How the separate tax can be identified?

Article 7 of the Tax Code, in particular, prescribes:

“7.1. The following elements shall be obligatory defined for establishing of the tax:

7.1.1. taxpayers;
7.1.2. object of taxation;
7.1.3. tax base;
7.1.4. tax rate;
7.1.5. procedure of tax calculation;
7.1.6. tax period;
7.1.7. terms and procedure of tax payment;
7.1.8. terms and procedure of reporting on calculation and payment of tax.”

Hence, taxes can be differentiated by these elements, which define the respective tax. In the list above the first four elements are key elements: (1) taxpayers, (2) object of taxation, (3) tax deduction basis, (4) tax rates.

General definition of taxes and duties is envisaged in Article 6 of the Tax Code:

“6.1. Tax is a mandatory, unconditional payment to respective budget which is collected from taxpayers according to this Code.

6.2. Duty (payment, fee) is an obligatory payment to respective budget which is collected from taxpayers, providing that they obtain specific advantage, including fulfilment of legally significant actions in favor of such persons by state bodies and bodies of local self-government, and other authorized bodies.”

Following these definitions and differentiation of taxes according to their key elements, it is obvious that there are even more than 12 taxes (11, which were mentioned by the Prime Minister + military fee).

Besides, it is unclear why military fee was not included to the personal income tax during “the New Year’s tax reform”. Since last changes, there are no more any substantial differences left in defining the object of taxation. And why actually it is a “fee”? According to the definition of “the fee” in the Tax Code (see the citation above – para. 6.2 Article 6) fee shall be collected only providing that the taxpayer receives specific advantage, including fulfilment of legally significant actions in favor of such person. How it can be related to the military fee?

It would be more honest to get rid of this fee and to increase the rate of personal income tax instead. Maybe, the Cabinet of Ministers wants to make Ukraine more attractive by way of declaring formally lower rate of personal income tax?

Still, let us come back to the issue of identification of the number of taxes. In particular, some taxes with different taxpayers, objects of taxation, tax deduction basis and rates are artificially specified in the Tax Code as one tax.

Thus, for example, the so-called “property tax” is specified in the list among local taxes (Article 10). According to the list this is one tax. However, Article 265 of the Tax Code further prescribes:

“Article 265. Composition of property tax

265.1. Property tax consists of:

265.1.1. tax on real estate other than a land plot; (1)
265.1.2. transport tax; (2)
265.1.3. a land fee.” (3)

In other words, this one property tax actually comprises three taxes – the so-called “tax Matryoshka doll”.

The analysis of some other taxes and duties also gives grounds for increase of the estimated number of taxes.

Hence, the number of taxes, stated by the Prime Minister, does not correspond to the facts.

It would be better not to conceal the actual situation but deal with real issues on reducing tax burden.

If to follow the other approach then why not to reduce the number of taxes in Ukraine, for example, just to one tax (it would, probably, be the least taxes in the world!), which will comprise the necessary number of taxes as its constituents. In fact, everything is still the same, but how it would sound: Ukraine is the state that has one tax only!

The question is: would it improve investment opportunities and business climate in Ukraine?

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice. 

Kind regards,

© WTS Consulting LLC, 2015

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