Budget 2016: all about payroll tax

UKRAINE - In Brief 14 Dec 2015 by Dmytro Boyarchuk

---

On December 11 the Cabinet finally submitted draft budget to the parliament. The spending plan is based on new taxation rules. In particular, payroll tax will be reduced to 20% from near 37%. Simplified tax system will be substantially restricted. Enterprise profit tax rate remains flat at 18% and will be reduced to 17% in 2017. Personal income tax increased to 18% (15% currently). VAT unchanged with partial abolition of special taxation regime for agro-producers. In fact the main feature of budget 2016 is payroll tax reduction what outlines reasons for all other changes at the budget. In particular, cutting payroll tax to 20% is projected to generate near UAH 100 billion losses for Pension fund. To compensate the losses Finance Ministry initiated substantial tax base widening as well as spending cuts. In particular, budget revenues are projected to increase by 16.3% y/y up to UAH 601.4 billion with VAT (+23.3% y/y) and excise duties (+39.2% y/y) securing ¾ of the increase. Spending of central budget increased by 15.9% y/y (up to UAH 674.1 billion); however, Pension fund subsidy boost (to UAH 172.3 billion from UAH 80.8 billion in 2015) was the main reason for that. At the same time, we see spending cuts on education and healthcare. Spending on army, police, and housing subsidies are growing. Deficit was suggested at 3.7% of GDP (UAH 83.7 billion) which is in line with the IMF requirements. Quasi-fiscal spending like Naftogaz support and refunding banks was envisaged but without specific numbers. The only sum which was released is UAH 16 billion support for Deposit guarantee fund. The spending plan as well as tax changes are under tough critique. Both businesses and bu...