6. Administration of taxes

Starting from 2002 amongst others the procedures for administration of all taxes and duties, application of fines and appeals against the taxauthorities’ decisions, were unified under specific legislation. Among many positive changes, the law limits the number of tax audits by the taxauthorities and provides for the possibility of obtaining tax clarifications (although not legally binding) from the tax authorities for use bytaxpayers. In summary, this law sets a rather clear framework for interaction between taxpayers and the tax authorities and thus represents a very good step towards further development and improvement of the Ukrainian tax system.

Double taxation treaties and trade agreements

In any countries the Double Tax Treaty network plays an important role in encouraging foreign investment. Ukraine consistently works on widening its treaty network and by the time of writing concluded double taxation treaties with 43 countries. At the same time Ukrainecontinues honouring the double taxation treaties of the former Soviet Union until new treaties replace them.

Ukraine is not an easy country in which to pay taxes. In the recent "Paying Taxes" study released by PricewaterhouseCoopers and the World Bank, Ukraine was identified as one of the most difficult countries in which to pay taxes out of the 185 countries surveyed. Many companies employ tax accountants in addition to financial accountants as tax accounts are separate from financial accounts. The study estimated that a modest-sized domestic business would need to make 98 tax payments each year, and would require 2,185 hours per year to comply with its tax compliance requirements.

For several years, there have been discussions about consolidating the various revenue laws into a single Tax Code, which should ease compliance and administration. A new initiative is underway to have this introduced into Parliament sometime in 2007, and to apply from January 2008.

An interesting feature of the Ukrainian tax system is a simplified or unitary tax available for many small businesses. Qualifying sole proprietors opting to use the system pay a fixed amount of tax, while eligible entities pay a fixed rate of tax based on their revenues. In both cases, the businesses are exempted from income tax, a number of other small taxes, and potentially value-added tax (VAT). The corporate regime is discussed in Corporate tax system , while the regime for individuals is discussed in Private entrepreneurs .

Direct and indirect tax burden

Taxation accounts for around 73% of government revenues. More than three-quarters of this is collected through corporate income (profits) tax (CPT), personal income tax (PIT), and VAT.

Tax collections have increased rapidly over the past five years. The trend in income tax and VAT collections for the period 2002 to 2006 is illustrated in diagram 1.

It can be seen that the reduction of the individual tax rate in 2004 significantly increased the collection of individual taxation.

A 15% increase in overall tax revenues is forecast for 2007.