Issued since 1995
Welcome to the Finance of Ukraine site (demo).
Login | Register
ACADEMY
OF FINANCIAL
MANAGEMENT
.


№ 9/2021

№ 9/2021

Fìnansi Ukr. 2021 (9): 7–35
https://doi.org/10.33763/finukr2021.09.007

TAX POLICY

SOKOLOVSKA Alla 1

1SESE “The Academy of Financial Management”
OrcID ID : https://orcid.org/0000-0002-1022-8215


Directions of review of the system of VAT reliefs in Ukraine


In the conditions of searching for ways to fill the state budget, reforming the system of VAT reliefs, losses from which make up more than 70% of total losses from tax benefits in Ukraine, can be an effective alternative to raising tax rates. The purpose of the article is to determine the directions of revision of the system of VAT reliefs in Ukraine in the context of the implementation of the Association Agreement with the European Union and its Member States. The subject of the study are two forms of reliefs – exemptions from tax and the use of its reduced rates. In addition, validity of qualification of the operations specified in Art. 196 of the Tax Code of Ukraine, as those that are not subject to VAT taxation, is considered, and it is established how one or another transaction should be qualified in accordance with Council Directive 2006/112/EC. A comparative analysis of VAT reliefs in Ukraine and the EU countries has shown that in addition to exemptions similar to those provided in the Council Directive 2006/112/EC, the Tax Code of Ukraine includes exemptions from transactions that are allowed to be taxed with the Directive at reduced rates, as well as exemptions which are not provided by the Directive. On the other hand, some mandatory exemptions under Council Directive 2006/112/EC do not apply in Ukraine. There are certain inconsistencies in the definition of transactions, the taxation of which at reduced rates is provided in the Tax Code of Ukraine and in Council Directive 2006/112/EC. The established differences determine the possible directions of revision of the system of VAT reliefs in Ukraine. However, its real scale may be different. Ukraine can go both by minimizing the system of tax preferences by refusing not only the exemptions which are not provided by the Council Directive 2006/112/EC, but also by transforming certain exemptions into taxation at a reduced rate, and by maximizing the opportunities for preferential taxation provided by the Directive. It is concluded that the choice of a certain kind of path will be influenced by the following factors: uncertainty of Ukraine’s accession to the EU, which puts our country not in such a rigid framework in the context of compliance with EU legislation as candidate countries; the state of public finances in our country: the need to expand the fiscal space and the possibility (their absence) of its expansion at the expense of sources not related to tax benefits; the presence of political will at the leadership of the state to optimize tax preferences.

Keywords:VAT reliefs, non-taxable transactions, tax exemptions, reduced tax rates,approximation of the system of VAT reliefs to the requirements of the Council Directive 2006/112/EC

JEL: E62, F36, H21, H22, H87


Sokolovska A. . Directions of review of the system of VAT reliefs in Ukraine / A. . Sokolovska // Фінанси України. - 2021. - № 9. - C. 7-35.

Article original in Ukrainian (pp. 7 - 35) DownloadDownloads :113
1. Global tax expenditures database. Retrieved from gted.net/country-profile.
2. Ecobici, N. (2007). Fiscal and Accounting Aspects Concerning the Reverse Charge in the Context of Accession to the European Union. Universitaty of Constantin Brancusi Targu Jiu, Romania. Retrieved from mpra.ub.uni-muenchen.de/8012/1/MPRA_paper_8012.pdf.
3. Antonescu, M., & Antonescu, L. (2007). The obligations of VAT payers regarding the “reverse taxation” and the tax adjustment for fixed assets. Craiova: University Spiru Haret, 2007. Retrieved from mpra.ub.uni-muenchen.de/10994/1/MPRA_paper_10994.pdf.
4. Sokolovska, A., & Tvardiievych V. (2011). Debatable questions of reforming VAT. Finance of Ukraine, 8, 35–50 [in Ukrainian].
5. Sokolovska, A., & Rainova, L. (2020). Value added tax: approaches to reform in Ukraine and the european union. Ekonomika ta derzhava, 8, 43–48 [in Ukrainian]. doi.org/10.32702/2306-6806.2020.8.43
6. Hadzhieva, E. (2019). Impact of Digitalization on International Tax Matters. Challenges and Remedies. Retrieved from www.europarl.europa.eu/cmsdata/161104/ST%20Impact%20of%20Digitalisation%20publication.pdf.
7. Koshchuk, T. (2019). Ways to improve taxation for digital companies. Finance of Ukraine, 10, 73–88 [in Ukrainian]. doi.org/10.33763/finukr2019.10.073
8. Peci, P., & Morina, F. (2017). The Legal Framework for Harmonization of Value Added Tax (VAT) in European Union. Acta Universitatis Danubius. Juridica, 13 (1). Retrieved from journals.univdanubius.ro/index.php/juridica/article/view/3867/4023.
9. Asquith, R. (2020, 21 February). EU VAT reforms: trouble ahead? Tax Journal. Retrieved from www.taxjournal.com/articles/eu-vat-reforms-trouble-ahead-.
10. Pippin, S. E., & Tosun, M. S. (2016). Tax harmonization in the European Union and the eurozone: a multilateral analysis of tax systems. Financial theory and practice, 40 (4), 437–461. doi.org/10.3326/fintp.40.4.4
11. De la Feria, R. (2013). EU VAT rates structures: towards unilateral convergence. Working Paper, 05. Retrieved from core.ac.uk/download/pdf/288287405.pdf.
12. Frenkel, J. A., Razin, A., & Symansky, S. (1991). The International VAT Harmonization: Economic Effects. Working Paper, 3656. doi.org/10.3386/w3656
13. Shvabii, K. (2020, June 4). Tax reform should start with VAT. Mirror of the week. Retrieved from dt.ua/finances/neproduktivni-vitrati-neproduktivnoyi-ekonomiki-349880_.html.
14. Ebrill, L., Keen, M., Bodin, J.-P., & Summers, V. (2001). The Modern VAT. IMF. doi.org/10.5089/9781589060265.071
15. Abramovsky, L., Phillips, D., & Warwick, R. (2017). Redistribution, efficiency and the design of VAT: a review of the theory and literature. IFS Briefing Note BN 212. Retrieved from ifs.org.uk/uploads/publications/bns/BN212.pdf.
16. De La Feria, R., & Krever, R. (2013). Ending VAT Exemptions: Towards a Post-Modern VAT. In: VAT Exemptions: Consequences and Design Alternatives, 3–36. Wolters Kluwer. Retrieved from www.researchgate.net/publication/303863105_Ending_VAT_Exemptions_Towards_a_Post-Modern_VAT.
17. European Commission. (2008). The use of differential VAT rates to promote changes in consumption and innovation (Final report). Retrieved from ec.europa.eu/environment/enveco/taxation/pdf/vat_final.pdf.
18. PWC. (2011). How the EU VAT exemptions impact the Banking Sector (Report). Retrieved from www.pwc.com/gx/en/financial-services/pdf/2011-10-18_vat_study_final_report.pdf.
19. Sokolovska, A. M. (Ed.). (2006). The system of tax benefits in Ukraine in the context of European experience. Kyiv: RFI [in Ukrainian].
20. Serebrianskyi, D. M. (2014). Effectiveness of VAT and corporate income tax benefits in Ukraine. Bulletin of the University of Banking of the National Bank of Ukraine, 1 (19), 42–47 [in Ukrainian].
21. Iefymenko, T., Ivanov, Yu., & Karpova, V. (2021). Differentiated VAT rates in Ukraine: problems and directions of solution. RFI Scientific Papers, 1 (94), 5–21 [in Ukrainian]. doi.org/10.33763/npndfi2021.01.005
22. Torp Jespersen, S., Dahl Winther, Ch., Mekonnen Ali, D., & Næss-Schmidt, S. (2011). VAT in the public sector and exemptions in the public interest (Final report). 2011. Retrieved from op.europa.eu/en/publication-detail/-/publication/b42f258c-9ab7-11e6-868c-01aa75ed71a1.
23. Vovk, T., Vodiannikov, O., & Konovalenko, I. (2004). Tax aspects of WTO law and the EU acquis. Landmarks of tax reform in Ukraine. Kharkiv: Consum [in Ukrainian].
24. EU Council. (2006, November 28). Directive 2006/112/EC on the common system of value added tax. Retrieved from zakon.rada.gov.ua/laws/show/994_928#n586 [in Ukrainian].
25. Lomas, U. (2021, February 15). EU Kick-starts Review of Financial Services VAT Rules. Tax-News.com. Retrieved from www.tax-news.com/news/EU_Kickstarts_Review_Of_Financial_Services_VAT_Rules____97915.html.
26. Verkhovna Rada of Ukraine. (2010). Tax Code of Ukraine (Act No. 2755-VI, December 2). Retrieved from zakon.rada.gov.ua/laws/show/2755-17#Text [in Ukrainian].
27. Hashimzade, N., Heady, Ch., Myles, G., Oats, L., Scharf, K., & Yousefi, H. (2014). The Definition, Measurement, and Evaluation of Tax Expenditures and Tax Reliefs. Retrieved from ore.exeter.ac.uk/repository/bitstream/handle/10871/16391/TARC_Tax_Expenditures_and_tax_reliefs_09-07-14.pdf?sequence=2&isAllowed=y.
28. Kraan, D.-J. (2004). Off-budget and tax expenditures. OECD Journal on Budgeting, 4 (1), 121–142. doi.org/10.1787/budget-v4-art6-en
29. Fleming, J. C., & Peroni, R. J. (2010). Can Tax Expenditure Analysis Be Divorced from a Normative Tax Base: A Critique of the “New Paradigm” and its Denouement. Virginia Tax Review, 30, 135–180. Retrieved from papers.ssrn.com/sol3/papers.cfm?abstract_id=1674544.
30. Laporte, B., Caldeira, E., de Quatrebarbes, C., & Bouterige, Y. (2018). Tax Expenditure Assessment: From Principles to Practice (Methodological guide). Retrieved from ferdi.fr/dl/df-PSDXZuxEEh8LihnEhHUoFkjx/tax-expenditure-assessment-from-principles-to-practice-methodological-guide.pdf.
31. Parliament of the Czech Republic. (2004). Value Added Tax Act of the Czech Republic (Act. No. 235/2004, April 1). Retrieved from taxlink.ua/ua/international_normative_acts/zakon-pro-podatok-na-dodany-vartist-cheskoi-respybliki/ru/ [in Russian].
32. Parliament of the Republic of Poland. (2004). Law on Tax on Goods and Services of the Republic of Poland (Act. No. 54, March 11). Retrieved from taxlink.ua/ua/print/international_normative_acts/447/ [in Russian].
33. Parliament of the Republic of Bulgaria. (2006). Law on Value Added Tax of the Republic of Bulgaria (Act. No. 63/2006, August 4). Retrieved from taxlink.ua/ua/print/international_normative_acts/443/ [in Russian].
34. European Connission. (n. d.). Tables on VAT rates in individual EU Member States including special rates. Retrieved from ec.europa.eu/taxation_customs/vat-rates_en.
35. Sokolovska, A. (2021). Contradictions and problems of harmonization of value added tax rates in the EU. Finance of Ukraine, 3, 23–45 [in Ukrainian]. doi.org/10.33763/finukr2021.03.023
36. Verkhovna Rada of Ukraine. (2010). About value added tax (Act. No. 2755-VI, December 2). Retrieved from zakon.rada.gov.ua/laws/show/168/97-%D0%B2%D1%80#Text [in Ukrainian].
37. Verkhovna Rada of Ukraine. (2010). About culture (Act. No. 2778-VI, December 14). Retrieved from zakon.rada.gov.ua/laws/show/2778-17#Text [in Ukrainian].
38. Verkhovna Rada of Ukraine. (2021). On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine Concerning Ensuring Balance of Budget Revenues (Explanatory Note to the Draft Law of Ukraine). Retrieved from w1.c1.rada.gov.ua/pls/zweb2/webproc34?id=&pf3511=72106&pf35401=548627 [in Ukrainian].
39. Poddar, S. (2010). Taxation of Housing Under a VAT. Tax Law Review, 63 (2). Retrieved from www.researchgate.net/publication/228181847_Taxation_of_housing_under_a_VAT.
40. Value-added taxes – Main features and implementation issues. (2020). Consumption Tax Trends 2020: VAT/GST and Excise Rates, Trends and Policy Issues. Retrieved from www.oecd-ilibrary.org/sites/152def2d-en/1/3/2/index.html?itemId=/content/publication/152def2d-en&_csp_=c74456d46ecc7b2f6fd3352bb00363ec&itemIGO=oecd&itemContentType=book#section-d1e11020.
41. Verkhovna Rada of Ukraine. (1998). About cinema (Act No. 9/98-VR, January 13). Retrieved from zakon.rada.gov.ua/laws/show/9/98-%D0%B2%D1%80#Text [in Ukrainian].
42. Sokolovska, A. (2021). Evaluation of the tax benefit effectiveness for certain types of activities. Finance of Ukraine, 6. doi.org/10.33763/finukr2021.06.040
43. State Fiscal Service of Ukraine. (2015). Explanation to the Ukrainian classification of goods of foreign economic activity (Order No. 401, June 9). Retrieved from customs.gov.ua/documents/pro-zatverdzhennia-perekhidnikh-tablits-vid-uktzed-versiyi-2012-r-do-uktzed-versiyi-2017-r-142 [in Ukrainian].
44. Verkhovna Rada of Ukraine. (2021). On Amendments to the Tax Code of Ukraine Concerning the Value Added Tax Rate in Taxation of Transactions on Supply of Certain Types of Agricultural Products (Explanatory Note to the Draft Law of Ukraine). Retrieved from w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=72220 [in Ukrainian].
45. Moroz, I. (2021, January 25). Reducing the VAT rate on the sale of a number of types of agricultural products will lead to an increase in the cost of production up to 5% and a drop in the profitability of processors by 50-70% - business and company merger. Retrieved from ukranews.com/news/752462-snizhenie-stavki-nds-na-realizatsiyu-ryada-vidov-selhozproduktsii-privedet-k-rostu-sebestoimosti [in Russian].