IMF evaluates tax policy in Ukraine

The International Monetary Fund (IMF) considers that Ukraine's current tax policy has been significantly updated in recent years, but it still needs proper improvement through the introduction of effective instruments.

This is said in a Technical Assistance Report released by the IMF on November 23.

“Tax policy in Ukraine is engaged in two fronts at once. On one front, very significant work has been done over the years on the gradual improvement and updating of the tax system; on the other, it questions essential tenets of the existing system, exploring fundamental changes to it,” reads the report.

According to the IMF, “serious efforts” have been directed to the modernization of the international aspects of the income tax, upgrading the regime to the Organization for Economic Co-operation and Development (OECD) standards. However, “there is a strong push from some quarters of the policy debate to do away with the Corporate Profit Tax (CPT) altogether”.

The Fund explains that the main idea is to replace it with a Distributed Profit Tax (DPT), generally referred to in Ukraine as the Exit Capital Tax (ECT). “In previous reports FAD [Fiscal Affairs Department] has argued against the adoption of the ECT: it would lead to a significant loss of revenue, it is fundamentally regressive, it is complex to control, and there is no evidence that it may help growing investment,” reads the report.

It is noted that accelerated depreciation of fixed investments, a more targeted tax incentive, has been recently adopted in Ukraine, which should be allowed to generate the expected results.

In addition, there is a plan for a Voluntary Disclosure Program (VDP), which is positive for tax policy. The main purpose of the VDP is to allow taxpayers to come forth and regularize, for a fee, financial or physical assets that have evaded the income tax

“This should allow growing the tax base in the future since the income generated by those assets will become visible to the State Tax Service (STS),” reads the report.

The analysis, conclusions and recommendations of the IMF were compiled based on the work of a technical assistance mission from the IMF, which worked with official Kyiv through video conferences in July 2020.

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