Although the tax authority proposes to revise the code in several places at once, all these proposals are driven by three purposes — improving budget collection, protectionism, and administrative simplification.
“Collectability” has been declared a problem, including in connection with the Pension Fund crisis. We’re told we need a guaranteed source of revenue to deal with the fund’s deficit. However, any manager knows that, first of all, the Pension Fund should be abolished and its obligations transferred directly to the budget, and only then should we think about how to fill that budget. It is clear that this move will add the fund’s deficit to the budget deficit, but until this step is taken, references to one bureaucratic system’s actions serving another’s interests should carry no weight. In other words, this prerequisite must be met before the stated goal can even be approached.
Nevertheless, innovations are coming, and the turnover tax has now been tapped as the main “budget filler.” Let me remind you that the essence of this “filler” tax is that it cannot be evaded. That is precisely why the Ukrainian version of VAT was invented. Over time, it became encrusted with various practices and now, apparently, no longer serves its original purpose. However, VAT is not being abolished — only a reduction in rates has been announced.
It is clear that it is very difficult to escape turnover taxation. And that is precisely why they are introducing it. Yet the direct consequences of such a tax are far worse than the problems it solves (if we accept that these problems even need solving). The turnover tax is actually a tax on capital, a development-killing tax, one that works by penalizing growth in “capital intensity” — that is, the lengthening of production chains, which makes it possible to produce more valuable goods. Modern production chains include thousands of stages, at which enterprises operate without knowing each other and purchase each other’s products. Introducing a turnover tax means punishing them for cooperation and division of labor. Where a production chain could have been extended and a more valuable product obtained, this simply will not happen now, and old chains may be destroyed as well. A rate of 2% is more than sufficient for this, since the tax is collected at each stage. “Consolidating under one roof” enterprises participating in cooperation in order to minimize the tax does not at all save the economy from its consequences, since no one can tell you exactly which enterprises should be consolidated — and even if they could, they would quickly realize it is impossible. Moreover, even if we assume that such a measure is feasible (and it is indeed implemented) and close our eyes to its limited character, the main consequence does not disappear — the fact that the tax forces the preservation of some fragments of existing chains and punishes the creation of new, more productive ones.
The second goal of the tax authority — protectionism — lies outside the framework of economic discussion. Commenting on protectionism as an economic goal is like commenting on the theory of ether within modern physics. Protectionism is faith, an emotion deriving from the delusion that the seller gains more than the buyer. This faith, multiplied by fear of strangers — that is, foreigners — creates the phenomenon of protectionism, which, I will repeat, belongs in the domain of psychology, not economics.
Nevertheless, there are innovations here as well. First, this is the differentiation of VAT for “domestic” and “foreign” operations, and second, a 3% fee to the Pension Fund from non-cash currency operations within “trade turnover” — that is, actually, an import tax. Thus, for the sake of state reporting figures that look good, Ukrainians must pay more for imported goods than they otherwise would.
Finally, whether the goal of administrative simplification has been achieved can only be judged by practical results. Usually, “simplified” means simplified for the officials themselves. Sometimes their relief coincides with ours, but more often our relief in one area is offset by new complications elsewhere. The reality of these “reliefs” is determined by practice, and it is entirely determined by the arbitrary authority of officials. For example, I know of cases when reports compiled using the much-touted “electronic reporting” still had to be delivered to the tax authority in person. And so on. Generally speaking, no promises to make life easier for taxpayers can be trusted, because these promises directly contradict the nature of the tax authority’s work. For example, I have personally heard this promise, that starting Monday advance taxes would never be collected again under any circumstances — in this case, the profit tax — for the twentieth time.