Tax NewsFlash - March 2024

Tax / Topic

Issues

Proposed Solutions

Corporate Income Tax

Low flat corporate income tax rate and lack of differentiation by industry

Differentiation of income tax rates:

25% - for the banking sector;

20% - general rate;

10% - for agricultural producers, financial leasing, social sphere.

Value Added Tax

Low VAT rate compared to other countries and low collection levels of this tax

The tax rate at 12% and elimination of tax exemptions that negatively impact the state budget;

Format-logical control during the completion of VAT reporting;

Simplification of the VAT refund procedure through the application of digital solutions.

Excise Taxes

The need to harmonize excise rates on tobacco products within the EAU framework

Gradual increase in excise taxes on tobacco products in accordance with the EAU Agreement

Small and Medium Size Business

Excessive variety of special tax regimes with different conditions and criteria, which complicates their application and tax administration

Abolishment of rarely applied special tax regimes, merger of regimes with similar conditions, and revision of application criteria based on real practice

Luxury Taxation

Absence of taxation of luxury items

Higher property tax rates if the total value of an individual’s assets exceeds 130 000 times the Monthly Index Factor;

Multiplicative increase in tax rates for private yachts and airplanes

Elevation of excise taxes on expensive types of alcoholic beverages and cigars

Tax Incentives

Inconsistent approach to granting tax incentives

Comprehensive approach for granting and monitoring the effectiveness of tax incentives;

Obligatory reporting of all granted tax incentives on tax declarations for the efficiency analysis purposes;

Reduction of tax incentives by at least 20%;

Establishment of obligations for taxpayers benefiting from tax incentives;

Setting clear objectives for the granted tax incentives with subsequent evaluation of the goals achievement. Extension of incentives only upon demonstrating their effectiveness;

Cancellation of inefficient tax incentives

The existing tax incentives do not fully facilitate the goal of reinvesting income into business development

Tax and obligatory payments exemptions for local and foreign investors in new processing industry projects for the first three years;

Income tax reduction/exemption for profits used in technological modernization and research;

Choice for taxpayers to capitalize or deduct any repair expenses;

Unified 25% maximum depreciation rate for fixed assets groups I and II

Tax Administration

The need for further optimization of the interaction between the tax authorities and taxpayers

Transition to a service-based tax administration model;

Implementation of pre-filled reporting and calculation of anticipated tax payments;

Expansion of special mobile applications and adoption of new IT-administration solutions;

30% reduction in tax reporting;

20% decrease in the overall number of mandatory payments to the budget;

Full digitization of tax control;

Differentiated approach in applying methods and measures for enforcing tax liabilities

Universal Filing Obligations of Individual Incomes

Need to revise the approach to universal filing, due to increasing digitization and significant simplification of tax control of individual incomes

Simplifying and optimizing the declared information while enhancing control mechanisms