Oleh Soskin,
Institute of Society Transformation Director

In the article the current state and the defects of the tax system of Ukraine are analyzed, dialectic of tax changes in the country since 1992 is shown, the principles and directions of the domestic tax system transformation are defined taking into consideration the necessity of modern, competitive economic model of Ukraine introduction.

Keywords: economic model, taxation system, tax administrating, transformation of the tax system of Ukraine.

Determination of the problem. The appointment of the tax system that is reflection and the organic component of the economic model of country development consist not only in tax collection and providing of the budget revenue for the state realization of its functions, but also in promoting of achievement the strategic aim of the national economic development. The purpose of tax system in the most developed capitalist countries is the accumulation of wealth and welfare of all society members that essentially corresponds to the model of national capitalism, which is introduced today or which is aimed at the most competitive country in the world. Taking that into consideration, the liberalized tax system is forming, which provides a moderate level of tax burden at labor and capital, creating of favorable conditions for attracting in business environment and increasing of income of as more individuals and their families members as possible.

Ukraine as a European country that has a market economy and is trying to create an effective system of management should form the capitalist relations in all branches of the reproduction process by the principle: the more capital media and rich people are in the country, the stronger is community, region, and state in general. Mentioned principle is the key in the building of national capitalism model by Atlantic sample that is focused on the development of private property institutions and powerful middle class, and functioning of the tax system in our country should be subordinated to its implementation only. Instead, another process is observed today in Ukraine: the current tax system, which consists of legislative, instructional-imperative and institutional-structural parts as well as practical tools of its operation, maintain for a model of state-monopoly capitalism, which has a clan-oligarchic nature. This system is subordinated to the interests of corporate financial and clan groups, creating conditions for receipt maximum monopoly profits while impeding the market transformation and damping the development of the middle class as the basis of national capitalism models.

Ukrainian taxation system has hypertrophied fiscal-criminal function and performs badly stimulating, distributive and social functions. It does not stimulate entrepreneurship and free competition, does not promote economic development on the innovation and investment basis, and does not provide welfare and reducing of social population stratification. Domestic taxation system is complicated, tangled and contradictory.

Defects of Ukraine tax system are denoted not only in numerous scientific studies but also in the conclusions of the officials. Specifically, it is indicated in the State program of economic and social development of Ukraine on 2010 year that the "Legislation of taxation in Ukraine is still heterogeneous, and some legislative norms are not enough coordinated and are sometimes contradictory. In addition to legislation, taxation issues are still governed by decrees of the Cabinet of Ministers of Ukraine, Decrees of the President of Ukraine. Due to the availability of norms of indirect action in legislative acts significant number of issues in the sphere of taxation is regulated by bylaws normative legal acts. It is also observed: the big tax burden on business, imperfect order of taxes and duties administrating, branched system of benefits, which leads to unequal conditions of business management, and availability of various schemes of tax obligations minimization" [1].

As a result, Ukrainian society proved to be unable to produce wealth, 60% of the population are unable to feed themselves, 15 million people need housing subsidies and other mechanisms of social protection and support. Ukraine must radically transform its model of economic development, especially such an important its part as the taxation system, in order to become a successful, competitive country in the world racing in conditions of globalization and information-technology revolution.

Analysis of last researches and publications. Fundamental and applied researches, dedicated to taxation issues are contained in scientific works of many foreign, including Russian, authors, such as: M. Alle, A. Auerbach, N. Kaldor, A. Laffer, R. Masgrave, J. Mirlis , Sendford S., J. Slemrod, M. M. Alekseenko, S. V. Barulin, B. H. Boldyrev, I. V. Gorski, I. V. Karavajeva, L. M. Lykova, S. D. Nadyezhdina, L. P Pavlova, V. H. Panskov, H. B. Polyak, I. T. Pososhkov, D. H. Chernik, K. Y. Chyzhov, S. D. Shatalov, T. F. Yutkina etc.. Publications of such Ukrainian scientists as V. L. Andrushchenko, O. D. Vasylyk, V. P. Vyshnevskyi, T.I. Yefymenko, Y. B. Ivanova, A. I. Krysovatyi, M. I. Krupka, I. O. Lunina, V. M. Melnyk, P. V. Melnyk, S. V. Mykhailenko, V. N. Oparin, A. M. Sokolovska, L. L. Taranhul, V. M. Fedosov, O. P. Chernyavskyi, L. M. Shablysta, S. I. Yuriy and others are noteworthy. Different aspects of taxation optimization in Ukraine are shown in the works of mentioned scientists. However, the tax system transformation model as a whole organism in conditions of transition economy of Ukraine, when the choice and formation of competitive model of economic development is taking place, is not practically represented in the researches of domestic scientists.

The purpose of the article – is to outline the main features of the Ukrainian tax system and to determine the directions of its transformation in the context of modern economic model of Ukraine formation.

The main results of the research. The tax system is a tool of the state regulation of economy that allows removing a part of private income of entities and individuals permanently in favor of the state, redistributing in such way created in the society product. With the help of tax system state could stimulate desirable and limit undesirable social and economic processes and trends, form the relations between economic entities in accordance with the purposes of chosen model development, perform proper social, humanitarian and security obligations and functions. But their financial providing is possible only on account of part of the wealth, which is created by society members and is removed from them. So more the person produce, the greater money mass of income will due to tax rate, which he has to pay the state. Just tax system is an essential mechanism for maintaining of economic balance between the person – the state interests and nothing of the state or local budget, the limit of poverty, minimum wage rate, social benefits and subsidies.

Taxes – is the part of the money income that entrepreneurs, other legal entities and natural persons consent to give the state voluntarily which spends them on the general social needs, maintenance of public institutions, strategic investments, support of unprofitable public sector enterprises. Instead, taxpayers expect that the state will provide appropriate services and perform in a quality way its functions. I emphasize: legal entities and individuals (natural persons) of Ukraine should pay only part of the income voluntary rather than it’s lion's share, which they have to pay in accordance with current tax legislation. Taxes by their nature are an absolute evil, because person, in principle, should not give anyone the results of her own work free of charge, share with created income. But he must to accept it, because he lives in society and is not free from it. Therefore the task of the state is to create a tax system that would keep the balance of "person – state” interests in a state of stability, rather than conflict, and was fair.

World experience testifies that the most optimal level of total taxation is within 30%. The most developed economy in the world is the United States economy, where the total level of taxation does not exceed 33%. The public debt begins to increase, efficiency of economy declines, the phenomenon of social parasitism occurs in countries where tax reaches 40% (Germany) or 45-50% (Sweden, Finland). Nowadays, countries with high rate of incomes removal have to transform the taxation system, because the existing system has already exhausted itself. The tax reforms, which are implemented in developed European countries, are aimed at liberalizing of the tax system in order to prevent the outflow of the capital and qualified specialists. As a result, the maximum tax rate on corporations income in developed countries - the EU members has decreased on the average from 35.3 to 29,5% since 2000 till 2006 year [2].

Forming own system of taxation, we should take into consideration that Ukraine did not exist as the state up to August 1991, had no private property as an institution and was not especially focused on its development. In order to be able to grow steadily Ukraine needs to involve all the factors of economic growth and especially such as stimulation of private property with the help of tax levers and tools. However, despite this seem to be axiomatic thesis, about 50 kinds of taxes and other obligatory payments to the budgets and state funds operate in Ukraine [3], as well as almost two thousand normative acts, which regulate the process of collecting taxes and other monetary removals and deductions [4]. In addition, Ukraine has extremely complex and opaque system of tax administrating. According to the data of research "Cost of the tax legislation keeping in Ukraine", prepared by the World Bank and International Finance Corporation, Ukraine occupies the 181st position among 183 countries by level of simplicity of taxes collection. Its administrating requires nearly 736 hours and over 4 billion hryvnias annually. Private business in general, except payment of direct taxes and duties, imposed by law, spent at least additional 7.8 billion USD on actions related to their administrating (salaries of accountants, purchase of forms, special software, etc.) in 2007-2009 [5]. Any economic transformations are doomed to failure in such circumstances.

The present tax system of Ukraine is organized in such way in order to remove from entrepreneurs and individuals of hired labor bigger part of their income. So in order to survive in such unfavorable tax environment, small and medium enterprises, citizens of Ukraine are forced to resort to tax evasion, which became the norm of life in Ukraine. The Bible says: "Give your Lord God a tenth of all the firstfruits and incomes”. But if the entity or individual is forced to give the lion's share of his income to the state, they are deprived of the motivation to develop their business. As a result, enterprises become unprofitable or move into the black sphere, and citizens seek the ways to hide their true incomes.

According to the results of sociological research, conducted by the specialists of the Institute of Society Transformation, citizens agree to pay taxes if they do not exceed 10% [6. Today this trend didn’t only remain, but acquired more fixed form. This tax burden is fair and can accelerate the development of entrepreneurial initiative.

The hour has struck long ago to change the general philosophy, methodology and practical mechanisms of the tax system. And it seems the officials understand who represent the interests of the ruling clan-corporate regime. This is affirmed by the fact that, different versions of Tax Code, numerous strategies, concepts, models of tax reform had been developed at the state level since mid-1990's. They replaced one another with each change of top government officials, but none of them was put into practice. The tax changes were brought to certain innovations, most of which only increased the tax burden.


Dialectics tax transformations in Ukraine

We have to recognize that a tax system, which functioned before the collapse of the USSR, was the most liberal and quite favorable for economic development. Cooperatives and small enterprises were not taxed three years, there was not VAT and extra charges on wages, and deduction in the Chernobyl fund, excise charge, duty and so on were not levied. The system of reproduction and profit receiving, which is not burdensome with excessive taxes, became an objective base of such situation that real boom of capital accumulation, increasing of enterprises and incomes number, unemployment level reducing took place during this period. So the tax system, which was inherited from the Soviet Union, could be taken positively.

The liberal tax system actually has begun to liquidate itself from the end of 1992. Instead, there was proposed such tax system, which prompted to the creation of state-monopoly capitalism model in Ukraine, state intervention in economic life and the administrative directive control over ordinary citizens. Strengthening of the tax burden was necessary for the realization of this purpose. At that time there was created the first destructive tax model with a huge VAT at 28% rate, which was calculated as turnover tax, that caused a significant jump of inflation, launched flywheel of goods price "twisting". As a result, there was a need of money mass increasing to serve the same number of goods (according to the law of money circulation: the amount of money circulating must be equal to the sum of goods prices). An income tax was introduced instead of profit tax; a system of financing the budget deficit through the National Bank with the help of a coupon-rubles emission was established. Excises and duties were initiated. A system of extra charges on wages and deduction in the Chernobyl and pension fund, employment and other social funds was introduced. All these funds lay a burden on wages and incomes of small and medium businesses. Wages and incomes of entities began to fall under such pressure, and "tax money" was plundered partly and partly was aimed at keeping of the bureaucratic system and the criminal-police apparatus.

After the officials have realized that the national economy is in deep crisis, tax system was corrected in Ukraine in 1994. The profit tax at 30% rate was introduced for legal entities instead of income tax. It was affirmed that it was a civilized tax, introduced with taking into consideration the world experience. It is right only from a formal point of view, but there is another side of this tax formation - a set of instructions, which are constantly changing and complicating. The VAT rate was reduced from 28 to 20%, but indirect taxes – excises, duties and land tax began to soar. Moreover, extra charges in different funds, whose number was steadily enlarged, increased. An unprecedented decision was made - deductions, in essence, in voluntary funds were certainly brought in the budget (funds exist only on voluntary donations everywhere). The number of taxes reached 20. It became absolutely unprofitable to develop business. Thus, there was laid such tax system in 1994, which led to a significant increase of pressure on labor and capital.

Collapsing standstill of state enterprises and exhaustion of private sector started in 1995 because of incompetent actions of “tax experimenters”. Millions of people became unemployed, savings of citizens devalued. The state addressed to the IMF and the World Bank for a loan.

Law of Ukraine "On state register of physical persons - payers of taxes and other obligatory payments ", after which a system of taxpayers individual identification numbers was introduced, was to put into operation in 1996 in order to strengthen the control not only for enterprises profits, but also for natural persons incomes. Law of Ukraine “On amendments to the tax inspectorate” was introduced. Last Law empowered to take any instructive normative acts concerning the formation of an electronic dossier for every citizen, to whom is attached an individual taxpayer identification number, to inform about personal data those whom they think it is necessary.

Decree of the President of Ukraine “On creation of the State Tax Administration of Ukraine and local tax administrations” was issued in August 1996. According to the Decree STA came out of the subordination to the Ministry of Finance. The tax police and Ministry of Internal Affairs of Ukraine, to the functions of which belonged struggle with the criminal concealment of profits from taxation, were subordinated to State Tax Administration. A symbiosis of tax police with the Ministry of Internal Affairs organs was formed, which get the character of police-penal organ.

Reorganization of State Tax Inspection in State Tax Administration, which actually became the ministry of taxes, can not be called "improvement" of the tax system. It worth to note, that such ministries exist only in five countries of the world, three of which are African. But these ministries are united with the custom house there. Our Tax Administration is united with Ministry of Internal Affairs, i.e. with the police. Created unprecedented since the Stalin communist regime mechanism enables to realize economic reprisals against the citizens of Ukraine.

The fifth of February, 1996 President of Ukraine signed the Law of Ukraine “On amendments to the Criminal Code of Ukraine and the Criminal Procedural Code of Ukraine on liability for tax evasion, according to which any person who evades taxes, may be imprisoned from 2 to 10 years with confiscation of property. There is written down in adopted amendments to the Criminal Code that the first liability for tax evasion on amount of $200 threatens with punishment to five years with confiscation of property, second - up to 10 years with confiscation of property. If close people and relatives knew about "unpaid taxes" and not inform the proper organs, they also may be imprisoned. Clearly, this law was oriented on confirmation of the state-monopoly clan-oligarchic capitalism model and power methods of economy management.

Similar changes of the tax system resulted in strengthening of the tax pressure and exploitation of the Ukrainian population. Tax was used as a tool of economic and even physical pressure on the citizens of Ukraine and as control of entrepreneurs. They were deprived of stimulations to develop their business, turning thanks to the legislative acts in criminal offenders. Taxation system in our country is not just unfair - it is antinational, as it is aimed at removal not only additional but necessary products from economic entities. As a result, Ukraine from economically developed country turned into a backward, permanently crisis country [7].

The confrontation between the state and entrepreneurs in the field of taxation was growing – and it has become antagonistic character in the end of 1990 -s. The state made concessions to small business - the President of Ukraine issued Decree “On the Simplified System of Taxation, Accounting and Reporting for Small Business Entities” № 727 on July 3, 1998.This system operates with some amendments till now.

National Commission on Tax Reform of Ukraine, headed by V. T. Lanovyi, developed a Strategy of tax reform in 2005-2006. In the same period, the Ministry of Finance of Ukraine drafted the Concept of taxation system of Ukraine reforming, which was proposed by the Government to the President of Ukraine. In 2007 the concept of reforming of the taxation system, calculated on the period till 2015 by the Cabinet of Ministers, headed by Viktor Yanukovych, was decreed by the order of Cabinet of Ministers of Ukraine dated from February 19, 2007 № 56-p. There was quite rightly stated: “Excelling of GDP re-distribution level through the tax system of Ukraine is one of the factors of negative influence on economic growth. Taking this trend into consideration, the Government decreed a resolution about substantial reduction of the tax burden on the economy and review of the ratio of the existing tax regulators”[8]. However, this concept has not been introduced; it was abolished in 2009 by the government, led by Yulia Tymoshenko, which adopted instead the Strategy of the taxation system reforming, planed on the period till 2018. There were put following principles in this Strategy: Reformation of the tax system in Ukraine will be realized by shift of the emphasis from direct to indirect taxes, in particular, transferring of tax burden from labor and capital to consumption, resource and environmental payments. As you know, developing of the new Strategy of the tax system reformation was one of the conditions for allocation of the fourth tranche of the IMF credit for Ukraine by the program stand-by. It should be noted that none of the paragraphs of this strategy was carried into practice. It should be expected that it will also be canceled by new government, headed by Mykola Azarov in 2010.

So, despite good declaration and correctly stated goal of tax reform aimed at building a modern competitive, socially oriented market economy, which would be integrated into the EU and provided sustainable welfare increasing of most people was not carried out in Ukraine. In my opinion, reasons of subjective nature prevented from its realization. As the tax reform was initiated by Government that presents the model of state-monopolistic capitalism and hold dominant positions in government organs. The realization of such reform of the model by the carriers is absolutely unprofitable, because the needs of small and medium-sized businesses that form the basis for the middle class in Ukraine don’t belong to the sphere of financial and industrial interests of the clans, which merged with the authority.


The main direction of transformation of the tax system of Ukraine

The experience of independent Ukraine existence shows that the current tax system should not be reformed, but transformed. We must decide on radical and non-standard measures, which were used, i.e. in certain oil and some newly industrialized countries of Southeast Asia, and allowed to accelerate improvements in the economy. There are no other options in our country than the immediate change of coordinates: the excessive tax burden should be removed from the citizens and they should be given a possibility to earn with their own forces and support themselves, because our country is in serious crisis now.

Tax system should be built on these principles in order to change the situation and to create a modern, competitive economic model in Ukraine:
Firstly, transforming the tax system, we must understand what part of income a person can give voluntary for the maintenance of public institutions, rather than how much money they can be deprived by using fiscal-power methods.
Secondly, the tax system should be based on the key position that the consumer has to pay taxes, but not the manufacturer.
Thirdly, the tax system should be targeted on the mass of incomes, rather than quantity and value of taxes. Direct and indirect taxes should be no more than four or five; in addition they should be simple and clear in the administrating.
Fourthly, the tax system should encourage creation of the capital; provide the process of broadened social reproduction.
Fifthly, the state as a set of institutions must use tax revenues first of all for the nation intelligence development, its young generation, the formation of modern culture and education.
Sixthly, the tax system should take into account primarily the interests of legal and physical persons who produce wealth, but not those who redistributes and consume them parasitically.
Seventhly, the taxation system must not violate human rights and freedoms (in particular people incomes, which are received from activities in their free time, which goes beyond 40 hours per week, can not be levied with tax).
Eighthly, creating a new tax system, fair and stable balance should be achieved in the distribution of taxes between the center and communities.
Ninthly, the tax system should not be an instrument for enriching of the clan-corporate groups and the impoverishment of the wide sections of the population.

Taking in consideration that just the state is the main culprit of today's impoverished condition of the prevailing number of citizens of Ukraine, the first step of its repentance before people should be the introduction of three-month tax holiday for all natural and legal persons, which occupied small business (up to 50 employees ). All taxes and charges should be abolished on this period. This measure is rather psychological than economic, but it can launch the wheel of economic activity, raise black money to the surface and overcome the complex of distrust of citizens to their state.

During three months through the mechanism of nominal bills, which enterprises will settle accounts with each other, the shortage of capital circulation can be overcome. As a result mutual redemption of debts will form three groups of companies: 1) enterprises, which will concentrate a large amount of debentures, 2) companies whose debts will be mutual paid off, 3) enterprises-bankrupts. Specialized banks, which can be created on the basis of state banks, work with last enterprises. Notes, accumulated by profitable enterprises, will be transformed in bonds of internal state loan for the period of 1-1,5 year, under 30-35 annual interests.

The management system should be reorganized during the tax holidays: branch ministries, departments, committees, foundations should be eliminated. Instead, a committee of state property management should be created through corporate stock. Ministry of Economy should be eliminated as such, that performs the functions of the Soviet State Planning Committee, but instead a Commission on conjuncture analysis issues should be created as a component as the Ministry of Foreign Affairs, which will track pricing trends on the world market and ensure foreign economic activity through the net of Ukrainian trade missions abroad. The Ministry of Finance also needs reorganization. Powerful reduction (almost on half) of officials and security forces should take place parallel, primarily in the Ministry of Internal Affairs system. Tax administrations should be transferred in the status of tax inspections again and returned to the Ministry of Finance. They should serve as counselors. Tax Police should be eliminated. At the same time it is expedient to reorganize the functions of the Treasury, which together with the National Bank of Ukraine will track the process of spending money from the state budget. Positions at all levels of public service should be occupied by workers of market ideology, and the rest of civil servants must go through re-education or be discharged.

The situation in the economic and socio-political life will be changed greatly as a result of the introduction of tax holidays for three months. People's trust to the authority will be recovered. About a third part of business can go out of the shade. Increase of production will be stimulated by increase of purchasing power. Real money will revive the business environment. This step will favour the elimination of the Ukrainian economy division on the informal, formal and natural by the integration of these three parts, which are operating mostly independently now, in a single organism. A separate process of reproduction is formed in each of them today, that is very dangerous as it may lead to the formation of three ways of economic life, three social-economic tenors of life in the country, which operate by their own laws.

After three-month holidays the tax system should be fundamentally reformed, become simple and transparent. We propose to replace the current system of taxation with directive (direct) taxes. (By the way, this issue is currently being discussed in Poland and other countries.) We should implement such taxes and charges, which will form the basis of the new tax system, content of which answers the national model of capitalism, which should affirm in Ukraine.

1. Purchase tax with 7% base rate. All natural persons and legal entities must pay it for purchased goods and services. It will be noted as separate line in payment document in order to ensure transparency and ease of taxes collection system. Tax will be directed in revenue budget at all levels automatically and continuously - at the time of the sale act, i. e. every day, every minute. No one can avoid this tax, because it will be paid by those who buy. A large army of controlling bodies and complex, cumbersome financial reporting are unnecessary under this system. Criminal-fiscal apparatus also will become unnecessary, as there will be no sense for an entrepreneur to hide their profits. Introduction of sales tax (purchase tax) will stimulate powerful competition between manufacturers for the consumer, who will endeavour to improve product quality, establish of optimal prices, increasing services during its realization. Market laws will come into force, the destruction of monopolies, free flow of the capital, the continuous filling of the budget, reduction of cash circulation scale will take place. There will be created conditions for the elimination of a huge network of intermediaries between producer and buyer, that will allow to increase the competitiveness of Ukrainian goods and services due to reducing of their prices through removing of mediation delta from it. As a buyer, but not the producer, will pay purchase tax, so just he will determine whether the product of the labor transformed into goods. This recognition will be realized through the act of sale, rather than barter or other schemes. A subject of purchase (natural person or company) adds to the cost of any product, which he recognizes as the goods (by giving money for it) 7% tax.

Purchase tax will become one of the main sources of filling state and local budgets, as more than a half of income from this tax remains in a place, where the act of purchase is realized. Distribution of the purchase tax should be following: 4% - should remain in the local budget, 1% - transferred to the regional budget, 2% - to the state budget. This tax will facilitate bookkeeping accounting because it is simple in administrating, and will favor rapid development of small and medium-sized private businesses. So it is obvious that the introduction of purchase tax is profitable for the state and entrepreneurs.

Purchase tax will perform the function of property tax simultaneously, which is inexpedient to be introduced through its repressive-fiscal character and difficulties in the administrating. The property should not be subject of any taxes today because 60% of the population of Ukraine is on the verge of survival. Some experts do not agree with our approach, arguing that only the rich people will win in this situation. But it will not happen if we create equal rules of game for everyone. The accumulation of wealth in certain financial and corporate groups, businessmen and officials is taking place now because the state monopoly and clan oligarchy impede the process of free flow of capital and launch of new businesses.

We have to note that purchase tax should not be confused with sales tax, the introduction of which is a quite complicated procedure because of its cascade. It is known that such tax was introduced in Soviet times (in 1990) and its rate was 7%. But this tax was abolished by the USSR Ministry of Finance due to the inability of its administrating in a year and a half. Complication of taxation mechanism stimulated to another tax introduction – (value added tax) VAT in this case.

2. Natural person’s income tax (income tax). It should be collected at 10% rate regardless of the amount of income. This tax is introduced only for the main place of work, and only for 40 hours working time for a week. Thus, work outside of working hours (over 8 hours a day) will not be levied with this tax, because taxation of the citizens in their free time is a violation of their rights and freedoms. The state should encourage those people who work in free time, providing for theirselves and their family. Working in spare time, a person promote creation of new working places, reduction of social spending from the state budget, increase of the wealth of the nation and the country as a whole.

Incomings from income tax for physical persons are distributed between central and local budgets in such way: 6% will remain in the community, 1,5% - transfer to the regional budget, 2.5% - to the state budget

3. Land tax. Every citizen of Ukraine must obtain a land certificate (at least 0,3 hectares) before introduction of this tax. Land is imposed by progressive scale depending on the area of land, its quality and location. Then the land will be used efficiently and will be in circulation, and formation of latifundium will become virtually impossible.

4. Excise. It must be paid firstly beverage manufacturers and manufacturers of tobacco products. Thus their price must not exceed the price of similar smuggling goods. We should to note opportunely that there are the lowest excise tax rates in Ukraine (e. g. 15 to 21% on tobacco products to 60% in France, UK). Taking that in consideration we think that increase of the excise tax on brandy, cigars, prestigious brands of automobiles, airplanes, boats, helicopters should be proposed to the Ministry of Finance of Ukraine in 2010 is reasonable decision. The excise on vodka and cigarettes also should rise.

5. Duty. Only raw goods should be levied with export tax, that they were unprofitable to be exported from the country, and luxury goods and commodities, which harm the environment and human, should be levied with import tax.

The rest of taxes - direct and indirect (VAT, income tax, deduction to social funds, etc.), as well as fee extra charge need to be canceled.

Today there is a lot of criticism on VAT – indirect multistage tax that operates actually as a modified purchase tax. This is a major fiscal tax in the Ukrainian tax system, collecting of which promotes the looting of the population and businesses. 57% of all tax incomings and almost 38% of total State budget revenues were formed in 2009 due to VAT. But its administrating is too difficult and the procedure of compensation is not transparent. After making more than 200 amendments to the Law of Ukraine “On Value Added Tax” its performance is too complicated. Special problem is failing to return of VAT to exporters. In autumn in 2009 the Government actually stopped compensates VAT to the enterprises that allowed overestimating the incomes of State budget general fund. The state debt from VAT compensation amounted to 21.8 billion hryvnias in the early 2010 and it reached 28.4 billion USD in March [10]. Moreover, VAT - is the most corrupt tax that is evidenced by such fact that "kickbacks" during his return to the exporting firms reaches 40% and more. So today, in our point of view, we need to talk about abolition of VAT, rather than its reducing. It will help to increase the competitiveness of domestic goods and effectiveness of economy in general.

Instead of deductions to various social funds, including Pension fund, we need to implement such an important element of our proposed system, as the opening of individual social and pension deposit accounts in state banks or other, where the share of state capital is not less than 40%, to every citizen of Ukraine, which has started his career. They will be formed from the following sources: a) deductions from enterprises and organizations of all property forms where works the citizen at the rate of 7%, b) deductions from employee wages at the rate of 7%, c) in individual deposits of citizens. When a person becomes a pensioner, her account will be unlocked (and it can also be used in case of illness or vacation). Money in the account should be indexed at inflation level and has 10% annual deposit charges. In order to use the money in these accounts effectively we need to create special funds in the form of open joint stock companies where the state will have own one third part of the capital. Only these funds will have right to work with the money, which are accumulated in the socio-retirement accounts, for the improvement of the investment climate in Ukraine.

It is also important to eliminate the widespread practice in Ukraine of unsystematic and economical unjustified benefits and subsidies giving to certain categories of payers or taxpayers in order to fill the State budget properly.

Ways of the State Tax Administration of Ukraine reorganization
Ukraine is going through the redistribution of property to large industrial enterprises, subjects of energy complex, land that aggravates the struggle between oligarchic financial-industrial groups. The ability to use government levers in the system of legislative and executive bodies allows deciding issues on property in favor of certain FCG. They are ready to use any means and tools in the fight among themselves for ownership and leadership for attributes of power in the country. The State Tax Administration and Ministry of Internal Affairs are the most effective among them are. That one, who controls these two structures, will control the existing power matrix.

The STA is not a financial instrument of market economy today in Ukraine, but it is the most powerful fiscal-punitive weapon. Let’s argue this thesis [11].
1. STA - is artificially created body, where three functionally heterogeneous systems - fiscal, accounting and punitive –police are united into one.
2. There is actually laid unlimited widening of STA rights and possibilities in the legislative basis of the tax system of Ukraine development, turning it into a monopoly punitive type superstructure.

This is evidenced by such data.

Firstly, STA received an unprecedented right to retain 30% means from the extra charge amounts and fines for tax evasion for forced development of their logistics. So it is directly interested in increasing of the tax number and rates.

Secondly, there was introduced statutory planning system of extra charges to the budget in order to improve discipline and financial interest of tax collector

Thirdly, there were introduced a special uniform, ranks and other militarized attributes, significant increase of wages for STA and its collaborators in order to create their cliquishness. There was created its own education system, in particular the Academy of Tax Service.

Fourthly, STA created PR system in order to promote and create a positive perception by the general population the way of their actions. There became implemented perverted idea in the consciousness of citizens that the main source of our country budget filling is the tax administration, though it is known that the enterprise is the main source in the world.

Fifthly, the tax police got the right to make arrests, to conduct the procedure of inquiry, to investigate and detention of violators of tax laws in custody.

Sixthly, there is created a powerful database of dossiers on all adult citizens of Ukraine in STA, who are appropriated with individual identification numbers.

Seventhly, there were legally given additional tools of the pressure to the STA – were inserted amendments to the art. 148 copy 2 of Criminal Code, where was illegal norm on tax evasion introduced, that can be punished with imprisonment, in order to put down the resistance of the population.

3. STA is aimed at the biggest removal of financial recourses from economic entities, due to its financial and legal destruction by its natural character, rather than at realization of taxes collecting function.

4. Recently, a conflict between tax administration and businessmen became more expressive. However, instead of eliminating of the causes that generate it, STA increase repressive mechanisms (it is imposing militarized tax posts and armed guard, negotiations with taxpayers are taking place in specially equipped rooms in the presence of armed guards, a system of agents-informants is created, etc.).

5. The militarization of STA is taking place: new militarized units are created, weapons and special equipment are purchased, secret internal control structures are created, hysterics of secrecy is increasing. Eloquent fact serves as a confirmation of this situation: the tax police announced the competition recruitment for the service of young people (under 30 years) who have special physical training.

6. STA operates under strict military principle of command unity, its structures have clearly-built vertical. It is not virtually subordinated and controlled either the Cabinet of Ministers of Ukraine, or other power structures. Head of the STA is formally subordinated only to the President of Ukraine, to whom he gives projects of numerous decrees that increase the tax burden in the country.

7. STA is informed about movements on the accounts of all citizens of Ukraine. If it is necessary, it gives the opportunity to undermine activity or even destroy any businessman or any economic or political structure. Therefore, the role and value of STA increases especially on the eve and during elections.

Based on the above noted statements, we consider it expedient to reorganize the State Tax Administration of Ukraine in the context of new economic model of Ukraine formation. This reorganization requires:
- to initiate an abolition of the Presidential Decree of Ukraine on the creation of the STA of Ukraine (1996);
- to break up STA as a monopoly formation of fiscal-punitive type that constrains the development of business activity in the country;
- to transfer service of tax inspectors to the Ministry of Finance, where Chief Department on taxation issues, led by Deputy Minister, should be created;
- to put down fee to the account of tax inspectors depending on the number, growth rates and sizes of enterprises turnover, which they serve.

Such a transformation will change the philosophy of STA of Ukraine; will re-orient taxation system from the suppression of entrepreneurship to promotion of its development and expansion. Based on the foregoing analysis of the STA nature and our suggested proposals concerning its transformation there was prepared the Open appeal to the President of Ukraine Leonid Kuchma on the need for radical restructuring of tax administrating in Ukraine in February, 2000, which was signed by about 100 managers of large enterprises, city councils and so on. The Appeal had been sent to Leonid Kuchma, but his answer was no real action, but harassment of this document signatories.

Conclusions. All the possible taxes that exist in the world are introduced in our country. Therefore the level of taxation in Ukraine is really one of the highest on international arena, which is destroying the basis for private business development and prevents the increase of citizens’ wealth. Unfortunately, the connection, that turns Ukraine in the failed country, took roots deeply and operates here, namely: the number of taxes and fees are increasing - business environment is reducing - revenues in the budget are decreasing - the strength of the state is weakening, and therefore the possibility of its economic and even political independence ensuring. So the issue of transformation of the tax system have already came out of the plane of economic issues and are acquiring more and more political character, are affecting the survival of Ukraine, its existence as a sovereign European state.

The implementation of our proposed ways of transformation of the tax system of Ukraine will promote the growth of wealth in all sections of society, formation of socioeconomic model of national capitalism with a powerful middle class of private owners and equal game rules for everyone, transforming of the state machine into a fair judge, rather than racketeer, overcoming the division of Ukraine economy on a formal and informal types. There will be a transition to a completely transparent tax system, when no one can avoid taxes, and most people won’t be interested in this. It will encourage those who can work and get more income. Tax transformation will become a push for reviving of the investment process: Ukraine will receive capital from everywhere after about six months - its own capital (hundreds of billions of U.S. dollars are carried out of Ukraine now), and foreign capital. Due to the increasing of the number of taxpayers, accounting simplicity and speed of capital circulation the problem of budget revenue will be solved. This system will facilitate the effective development of society, without breaking the balance between person and state.

Without transformation of the tax system in Ukraine progress in the development of private property, creation of media and institutions is impossible today. However, in order to conduct radical measures in the tax sphere we should not use widely the experience of Western countries, because their tax systems were formed in the past, and we should focus on the future and realize that the individual is self-sufficient primary value, and the state must serve her interests. The proposed model of the tax system takes these points into account; its implementation will allow Ukraine to occupy worth place among the European community.


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Scientific journal
"Economic Annals-XXI" №3-4/2010