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In the Soviet past, Ukraine had a negative experience of participating in an anti-alcohol company, which destroyed many working enterprises and only exacerbated social problems in society. Consequently, bad habits are not overcome, the economy is destroyed!

What is wrong with revenues?

The state budget of Ukraine for the first half of this year was executed with high rates of overexecution of the plan. The tax revenues amounted to UAH 440.7 billion, and non-tax revenues – UAH 59.7 billion. The share of tax revenues was 87%, and of non-tax revenues – almost 12%.

As a result, the planned indicators of tax revenues of the state budget for the first half of the year were exceeded by UAH 27.6 billion, or 6.7%.

Important items of overfulfillment of planned tax revenues are VAT on domestic goods and services (+ UAH 6.2 billion) and VAT on imported goods and services (+ UAH 6.5 billion). It should be noted that the budget VAT refund remained virtually at the same level as the year before last.

Tax revenues from excise tax on imported excisable products (+ UAH 4.4 billion) went up significantly compared to the planned indicators, as well as rent for subsoil use (+ UAH 4.4 billion).

At the same time, there are two positions of tax revenues of the state budget, according to which the targets have not been executed. They are revenues from personal income tax (minus UAH 420 million) and excise tax on domestic goods (minus UAH 2.9 billion), which did not provide adequate income mainly through taxation of tobacco products of domestic production.

If the small underexecution in the personal income tax plan can be explained by the fact that the economy has not yet recovered enough and this is a temporary phenomenon, then the significant shortage of domestic excise tax on tobacco products this year and stagnation in previous years make you think.

How increased commitments hurt the economy

The problem is that tobacco production is declining due to the government’s implementation of a tight tax policy aimed at increasing the tax burden and making it closer to that set by the relevant European Directive 2011/64 / EU.

The experience of implementing the Association Agreement between Ukraine and the EU shows that the increased commitments undertaken by Ukraine only harm the economy and jeopardize the existence of entire industries.

The result of this increase in the tax burden is the fact that production in the tobacco industry has been falling for several years in a row. Sales volumes in 2018 fell by 18%, in 2019 – by 24%. At the same time, this industry gives 50 thousand jobs, USD 2 billion investment in the domestic economy, almost USD 500 million of export revenue. It is this industry that gives about 7% of all taxes to the state budget of Ukraine, because 4 out of 10 large taxpayers are manufacturers of tobacco products.

The way out is to take into account the main factors of Ukrainian realities

The Council of Europe’s excise tax policy on cigarettes, which is basically specified by this directive, aims to simultaneously achieve objectives such as ensuring a high level of public health, the proper functioning of the intra-European market, effective combating tax evasion and illicit cigarette trafficking.

However, today even in the Council of Europe there is an opinion that the approaches to tax regulation of cigarettes specified by Directive 2011/64 / EU are outdated, there is a need to develop a more comprehensive and integrated approach to achieve a coherent policy in this area.

In our conditions, the implementation of European tax standards, without taking into account such fundamental factors as low population’s purchasing power and insufficient institutional capacity of regulatory authorities, only increases the shadow segment of the tobacco market, which this year has reached 12% of the official market.

By the way, this applies to other reforms and industries, especially this is evidenced by price rise in the market of heat and energy services.

Expert of the Growford Institute, Doctor of Economics Kostiantyn Shvabii for 24.tv.