‘10-13-10’ is the optimal formula to bring businesses out of the shadows and increase economic growth. Later, taxes can be slightly increased again
The essence of the new anti-corruption tax reform proposed by our team is to fight not the consequences, but the causes of Ukraine's shameful economic situation and corruption.
We need to start eradicating the economic preconditions for corruption while improving tax administration and increasing the responsibility of taxpayers and entrepreneurs.
Economic modelling has allowed us to determine the optimal tax rates that will allow businesses to come out of the shadows almost completely, reduce the state budget deficit, increase investment by 18 percent, create 20 percent more jobs, and generate four to six percent of additional economic growth.
So, the proposal is to introduce new, ‘10-13-10’ tax rates: VAT is reduced to 10 percent; labour taxes in total, from 34 to 13 percent; and income tax, to 10 percent, or tax on withdrawn capital, to 15 percent. Let me just say here that the model shows that the introduction of the latter, even with a higher rate, gives a better result than the labour tax.
In the history of almost every wealthy developed country, there have been times of maximum economic freedom, low taxes, and public investment in innovation and science.
For example, in 2008, Bulgaria cut its corporate tax fourfold and personal income fivefold, leading to budget revenues quadrupling in ten years.
In the worst-case scenario, the losses of the Ukrainian budget from the tax reform will reach only 0.5 percent of our future needs for financial assistance and investment.
And this is just the amount that will help to overcome corruption and launch economic growth.
However, anti-corruption reform is only the first step towards change. ‘10-13-10’ is needed to radically turn the tide.
In four to five years, as Ukraine draws closer to the European Union, the rates can be increased to ‘15-18-15’ in line with international commitments and European directives.
The main thing is that Ukraine has a chance not only to get back on its feet, but also to become the Next Big Thing for Europe itself – and the answer, not the question, of how to accelerate the EU's economic growth.
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