OREANDA-NEWS. August 08, 2014. The Ukrainian Government offers comprehensive changes in the taxation of wages. The Prime Minister of Ukraine Arseniy Yatsenyuk said at a session of the Cabinet of Ministers.

The head of the Government noted that in Ukraine a lion's share of wages is paid "in envelopes": "The shadow economy, the shadow wage, afterwards - the absence of pensions, social benefits and allowances. It also entails the lack of revenues in the state budget".

He reminded that the overall burden on the wage funds in the EU member states amounts about 36%, in Ukraine - 55%. "The load on payroll in Ukraine exceeds by 20% the showings of more competitive and stronger markets - those of the European Union".

The current salaries contain, he explained, two parts which are paid: 41% is the unified social tax and the income tax for physical persons - 17%.

The Prime Minister explained that the Government offers for discussion several approaches of “such qualitative and major changes” in the taxation of wages.

One of the variants is as follows: “We propose to establish a fixed payment for an employee – it is the minimum wage, which equals 41%. Everything higher than the minimal salary is offered to be taxed at 15% instead of 41%. Almost three-fold reduction of the unified social ta

“Another model is we fix taxation of the minimum wage as 37%, by this we reduce the basis by 4%, but all the sums which exceed minimum salary are the subject for taxation in the amount of 19%, instead of 15%,” the Head of Government explained.

He set an example. The average salary in Ukraine is UAH 3650, three minimum wages. Under the current procedures, the total amount of payments to the budget out of these funds makes up UAH 2126. Applying the models the Government offers, the payments which are due to be send to the budgets out of this sum (UAH 3650) reduce practically by UAH 700: “And it means the incomes of ordinary citizens will grow by UAH 700”.

 “Our proposition implies the reform of the unified social tax – which means taxation of the minimum wage at the fixed rate, while everything exceeding this fixed sum – at the level of 15%,” the Head of Government explained.

Arseniy Yatsenyuk stressed in order to avoid “holes” in the Pension and other funds the Government offers to act “according to a social justice principle” – which means to change the taxation system for incomes of physical persons: “The one who earns more pays more. The one who earns less pays less”.

 “Hence, we legalize and deshadow salary, threefold reduce the load on payroll. But those who earn a fortune fulfill their social function – they pay taxes. By these taxes we compensate a hole which will appear in the budget for pensions and other social allowances,” he explained. The Cabinet of Ministers has proposed six patterns of taxation of incomes of physical persons. The Head of Government appealed to the entrepreneurs while discussing this issue to choose the most optimal model of taxation of incomes of physical persons.

Besides, the Government offers to unify rates for passive incomes of physical persons: “Now there are a lot of them. If the rates are different, everyone is trying to escape from taxation. We consider a single rate should be applied to passive incomes, it is 15%”.

This rate won’t be applied to dividends as they are subject to income tax. “We cannot afford double taxation, so a special taxation procedure is to be applied to dividends,” Arseniy Yatsenyuk explained. 

Apart from that Arseniy Yatsenyuk informed the State Fiscal Service suggests to cardinally change approaches in tax administration, in particular to fix a single report period: “All the reports ought to be issued once a quarter”.

 “We shall go along the way of reducing the number of not only reports, but payments as well,” the Head of Government said. Moreover, the State Fiscal Service will introduce “a single window” reporting system.

 “This is the first block of our tax and economic reform. There were 22 taxes – there will become 9. Earlier the income tax was paid on the basis of tax reports, we will abolish that and will pay on the basis of accounting records. A number of taxes will be upgraded and transformed by us, we will radically improve tax administration and a system of paying taxes,” Arseniy Yatsenyuk summed up.