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Natalya Leshchenko: Ukraine’s new financial regulations will have “serious economic risks.”

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In an exclusive column for RBC Ukraine, economic analyst Natalya Leshchenko warns of the potentially harmful economic repercussions of bill 4101a, which is to be introduced this month by the Ukrainian parliament.

From the 1st of July a tax on deposit accounts greater than 20,706 UAH (approximately $1770) was to be introduced in Ukraine, a progressive rate of 25% up from the previous rate of 15%. However, before the above legislation went into effect, the government backtracked and instead suggested lowering the rate on all deposit accounts with income greater than 482,000 UAH (approx. $41,200) to between five and ten percent.

Unfortunately, it’s not as simple as it looks for Ukrainian taxpayers – the government has disguised a portion of the tax (about 18% of interest from deposits) as a “special tax” on commercial banks. Account holders, however, will more than likely bear the burden of these measures, as banks are expected to offset their losses from the bill by lowering the rate of return from deposits. This in turn implies that the average deposit – 8,000 UAH ($680) – will yield 300 UAH less per year, or $25. The piece of legislation in question, “Amendments to the Ukrainian Tax Code with Regard to Taxation on Capital Income” (4101a), was passed on the 4th of July.

Though Prime Minister Arseniy Yatsenyuk has repeatedly stressed that this is in fact a tax on the rich, it is blatantly evident that bill 4101a will only serve to widen the income gap and augment economic inequality in Ukraine. In its previous form, the law would have made all deposits under 20,000 UAH (approx. $1700) tax-exempt, while imposing a rate of up to 25% on the largest deposits. Now that 4101a has passed, however, the government will invariably receive 18% of the yield on all deposits in the form of a “special tax” on commercial banks. The cumulative rate of tax on large deposits will now rise by only three percentage points to 28% (18% “special tax” + 10% income tax), as opposed to the previously intended 35%.

Please, read in detail here (in Russian)

July 22, 2014