Kyiv’s plans to lower VAT rate will not affect Ukraine’s integration into the EU, deputy head of the Presidential Office for Economic Affairs, Rostyslav Shurma, said at the Ukraine Economic Outlook conference on Jan. 10.
According to Shurma, Ukraine has two options on how to comply with EU requirements for a minimum value-added tax rate of 15%, both possible even if the tax system is liberalized and VAT taxes are reduced to the level of 10% – something the government has been mulling for some time.
“The first way is this: we informed the EU representatives that we would like to ask for a VAT rate of 10% for a transitional period,” said Shurma.
“VAT is essentially a consumption tax, and we have difficulties with that (reduced aggregate demand due to the war) now, so we need a stimulus.”
The official added that the government is committed to abolishing existing VAT loopholes and exemptions – some goods are either completely exempt from the tax, or enjoy a 7% VAT instead of the nominal rate of 20%.
According to Shurma, Brussels has signaled it’s open to granting Ukraine the transitional period VAT exception Kyiv asked for.
Shurma added that another option is to keep VAT at 15-20%, while introducing a separate, more liberal rate for most commodity items.
“We wouldn’t like to do so, because one of the main principles of our tax reform is transparency,” said Shurma.
“An enormous infrastructure of tax optimization has developed over 30 years. And if we keep some tax loopholes in the legislation, one (corruption) scheme will simply change to another, and we will get the same ‘optimization’ within the framework of different VAT rates.”