Future economic growth in Ukraine vitally depends on continuing economic reform. The reform of personal income tax (PIT) is an integral part of this process. In this context, the new draft Law on personal income tax that was submitted by the Cabinet of Ministers of Ukraine to Verkhovna Rada represents a very important, positive step.
While some of the changes proposed in this draft bring much needed transparency, fairness and efficiency into the PIT system, others, however, are likely to cause a serious loss of tax revenue in the short-run. This could lead to budget deficits, macroeconomic and political instability. We recommend that the draft not be passed in the present form, because it is likely to cause a substantial loss of tax revenue. The purpose of this paper is to present policies that reform the tax system and limit the risk of negative short-run effects.