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Policy Briefing Series

  • 16.03.2018

    The fiscal impact of Tax on Withdrawn Capital: Methodological explanations

    (Code:TN/02/2018)

    The German Advisory Group Ukraine in cooperation with the Institute for Economic Research Kiev (IER) and Otten Consulting, published a range of papers on the currently discussed, possible introduction of an Tax on Withdrawn Capital (TWC, in our previous papers referred to as Exit Capital Tax, ECT) to replace the current Corporate Profit Tax (CPT). 

    Our conceptual analysis of the reform proposal including recommendations concerning TWC introduction is featured in anaytical note "Corporate Profit Tax vs. Exit Capital Tax: Analysis and recommendations". Detailed estimates of the possible fiscal effect of TWC introduction for 2018, based on the draft law on the TWC that was submitted to the Cabinet of Ministers in July, are the focus of the analytical note "Estimation of the short run fiscal impact of introducing an Exit Capital Tax". The fiscal effect was estimated as a shortfall of revenues ranging between UAH 36.9 bn and UAH 47.3 bn, (1.2% - 1.5% of GDP).

    Our estimates have been subject to discussion in the extensive debate led by various actors in Ukraine. We would like to clarify our recommendations regarding the TWC and respond to 7 main claims criticising our estimates by considering these in turn:

    1.  German Advisory Group/IER position regarding TWC introduction
    2. Need for reform of the tax authority (SFS reform)
    3. Macroeconomic/second round effects
    4. De-shadowing due to TWC introduction
    5. Increased profit distribution due to money previously spent on CPT
    6. Inclusion of TWC revenue from banks 
    7. Use of 2016 base data for fiscal projections

    To download the material, click on the attachet file below

    Attached file  (225.8 kb)
    Authors:  Betliy Oleksandra, Заха Девід
    Research spheres:  Fiscal and Social Policy
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