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Ukraine has the highest consumption taxes in Europe and the lowest purchasing power of the average consumer. And the level of capital taxation is more than twice lower than the EU average.

The analysis of the draft State Budget of Ukraine for the next year in terms of tax revenues allows one to see what tax policy the government is going to implement in the near future.

Estimated tax revenues in terms of individual taxes, assessment of the distribution of the tax burden by the tax base and by tax types provide useful information about the framework parameters of the state tax policy.

According to the draft State Budget for 2022 submitted to the Verkhovna Rada, the government plans to receive UAH 1103.7 billion of tax revenues into the state budget.

Non-tax revenues are planned at UAH 150.4 billion. The total amount of budget revenues is UAH 1,267.4 billion.

If we assess the draft budget by main taxes, it should be noted that its main quantitative parameters in terms of the declared tax revenues look quite realistic, especially taking into account the tendency of increasing the efficiency of tax administration by fiscal authorities of Ukraine. However, the planned revenues from value added tax (VAT) are underestimated.

This conclusion is possible after familiarizing with the statistics based on which the forecast of revenues from VAT has been made.

The Ministry of Finance uses understated estimates of VAT base. For example, the calculations attached to the draft budget demonstrate the final consumer expenditures for 2000 at UAH 3.1 trillion.

While according to the official data of the State Statistics Service of Ukraine (SSSU), for this year they are UAH 400 billion more and amount to UAH 3.5 trillion.

Based on the differences in current estimates of the VAT tax base, according to the Ministry of Finance and the State Statistics Service, we see that the proportion of differences in the current year will be approximately the same.

The Ministry of Finance estimates final consumer expenditures at UAH 3.5 trillion, while de facto, according to the State Statistics Service, in the first half of the year they are almost UAH 2 trillion.

That is, by the end of this year we can expect the value of this indicator of UAH 4 trillion.

In the past and current years, we see this consistent mistake, on which the budget calculations for this item of income are based.

Indeed, actual revenues from this tax are constantly more than planned.

By the end of this year, the planned VAT revenues are expected to be nearly UAH 13 billion more than approved by the amendments to the budget.

Table 1 presents the main indicators in relative terms that characterize the structure of the tax system in the current, next years and previous periods.

Table 1. Key parameters of the tax system of Ukraine, % of GDP

Indicators2001-20082009-20132014-20202021 (estimation)2022 (forecast according to the draft budget)
Personal income tax4.
Corporate profit tax4.
Value added tax79.49.810.110.5
Excise tax1.
Average value of tax coefficient31.238.438.337.639.4
Source: Author’s calculation based on data of Ministry of Finance, State Statistic Service of Ukraine

Based on the above data, there is a clear long-term trend of increasing the share of indirect taxes (VAT and excise tax) in the structure of gross domestic product (GDP) together with personal income tax (PIT).

The share of these taxes in the structure of the total tax burden has been constantly growing over the last 20 years.

In particular, the share of personal income tax increased by 2.5-3% of GDP, VAT – by 3-3.5% of GDP, excise tax – by 2.7% of GDP.

In view of this, it can be mentioned that the state in the process of forming and implementing its tax policy de facto “follows” the principle of transferring the largest share of the tax burden to honest and ordinary taxpayers.

In this context, we should also consider the distribution of the tax burden by type of tax base, which is widely applied in the EU, is demonstrative and is used to assess the distribution of the tax burden in this dimension.

The application of this methodology for assessing the distribution of the tax burden allows making a correct comparative analysis of the structure of tax systems in different countries.

For comparison, we selected the average for the EU 28 indicators, since Ukraine declares the compliance with European tax standards (see Table 2).

The average value of the tax coefficient as the sum of all tax revenues and social security contributions for 2020-2022 in Ukraine is 38.83%.

This is slightly below the EU average, but given the tax breaks, incentives and benefits that have been implemented in these countries as anti-crisis measures in 2020-2021, one may expect that its value will also decrease as a result of these years.

Table 2. Distribution of the tax burden by type of tax base in Ukraine (2020 – 2022, % of GDP) and EU countries, % of GDP

ПеріодPeriodTax coefficient, including:ConsumptionLabourCapitalPropertyEmissions
2020 (fact)39.514.419.
2021 (estimation)37.61418.
2022 (forecast according to the draft Budget)39.414.
Average for period38.8314.219.734.70.80.1
For reference: The EU-28 average as of 202039.
Source: Compiled by the authors based on data of Ministry of Finance, State Statistic Service of Ukraine, Draft Law “On State Budget-2022”, Taxation Trends in EU (2021 Edition)

The last two lines of the table clearly describe the existing imbalances of the tax system of Ukraine.

Despite the fact that Ukraine is characterized by the lowest level of per capita income in Europe, that is, with the lowest purchasing power of the average consumer, consumption taxes are the highest.

And the level of capital taxation is more than twice lower than the EU average.

In fact, such factor of production as labor is taxed at the same level as the EU countries.

In addition, Ukraine has three times lower level of property taxation compared to EU countries and 24 times lower level of environmental taxation!

This allows one to call the submitted draft State Budget for next year as a budget of tax imbalances.

Expert of the Growford Institute, Doctor of Economics Kostiantyn Shvabii for Business Censor.