What legislative changes are proposed to tax legislation and how will it affect local budget revenues?

On 5 November 2018, the Cabinet of Ministers of Ukraine submitted to the Verkhovna Rada of Ukraine a draft law On Amendments to the Tax Code of Ukraine and Some Other Legislative Acts of Ukraine on Improving the Administration and Revision of the Rates of Certain Taxes and Duties (No. 9260). And on 8 November, the deputies adopted the draft law in the first reading. Project norms offer a number of changes, which, if approved, will have an impact on budget revenues in 2019 and subsequent budget periods.

The experts of the Financial Monitoring Group of the Central Reform Office under MinRegion have analysed the draft law and focused on its certain provisions primarily related to local budgets.

  1. It is envisaged to increase the excise tax rates on tobacco products from 1 July by 9% in relation to the rates that will come into effect from 1 January 2019.
  2. It is proposed to increase the rental rates for the use of forest resources by 50%.
  3. In order to encourage enterprises to reduce environment pollution, as well as to approach Ukrainian rates to the rates for greenhouse gas emission in the EU countries, it is proposed to raise the ecological tax rate for carbon dioxide emissions by stationary pollution sources from 1 January 2019 from UAH 0.41 to UAH 10 per ton, besides, a step-by-step increase of the rate to UAH 30 per ton in 2023 (an annual increase of UAH 5 per ton) is envisaged.
  4. Among the proposals is a 2% increase in the rental fee for the use of subsoil for oil and condensate extraction, and 0.8% increase – for iron ore extraction.
  5. The draft law proposes a number of changes aimed at increasing control over fuel circulation, introduction of licensing of all economic entities engaged in the production, storage, wholesale and retail sale of fuel, increase of liability for violation of the legislation on the production and circulation of alcoholic beverages and tobacco products..
  6. It is necessary to pay special attention to the land tax on forest land, introduced after the adoption of the Law of Ukraine No. 2497 “On Amendments to the Tax Code of Ukraine and Some Laws of Ukraine on Promotion of the Formation and Activities of Family Farming Enterprises” dated 10 July 2018 (more about the main provisions of the Law at the link: https://decentralization.gov.ua/en/news/9431).

Therefore, in case draft law No. 9260 is adopted the taxpayers will have to adapt their business activity, financial and tax reporting processes to new requirements, and local self-government bodies will have a potential increase in revenues and will need to further search for the ways to exercise effective control over the completeness of the required payments to local budgets.

The materials are prepared by the experts of Financial Monitoring Group of the Central Reform Office under MinRegion (with the support of the U-LEAD with Europe Programme): Yanina Kazyuk, financial decentralisation coordinator; Viktor Ventsel, financial monitoring expert.

The full version is available in Ukrainian – please click HERE


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