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t t- 1 Baltic Journal of Economic Studies Vol. 5, No. 2, 2019---
DOI: https://doi.org/10.30525/2256-0742/2019-5-2-171-175
SOCIO-ECONOMIC COMPONENT OF PREFERENTIAL TAXATION OF INDIVIDUAL INCOME
Tetiana Plakhtii1, Lidiia Fedoryshyna2, Olena Tomchuk3
Abstract. The purpose of the article is to study the socio-economic component of the preferential taxation of individuals. It is shown that the Tax Social Benefit is the ability of the taxpayer to reduce the calculated total monthly taxable income in the form of wages. Methodology. The object of taxation is determined according to the status of the payer. So, for a resident - is: the total monthly (annual) taxable income; income from the source of their origin, which are finally taxed when they are charged (payment, provision), and foreign incomes - income (profit) received from sources outside. The object of taxation of a non-resident is: the total monthly (annual) taxable income from the source of its origin and income from the source of their origin in Ukraine, which are finally taxed during their calculation (payment, provision). Results. The basis of taxation is the total taxable income - any taxable income accrued (paid, provided) in favour of the taxpayer during the reporting tax period. Imagine the structure of the aggregate resources of households, which in the overwhelming majority are subject to tax. Individual Income Tax is fiscally significant for budgets of all levels, since after the distribution through the budget system the lion's share remains at the disposal of local budgets Practical implications. Although Ukraine is a market economy country, in our opinion, observance of these recommendations will have only a positive effect both on activating the regulatory function of the Individual Income Tax and on the level of income differentiation of the population as a result. Value/ originality. In view of a large number of studies of domestic scientists on this issue, it is necessary to systematize tax deductions from Individual Income Tax in accordance with the concept of tax expenditures, taking into account the specifics of tax legislation. The established indicators for the tax social benefit are calculated according to the following algorithm: the maximum amount for the application of the tax social benefit: the subsistence minimum for an able-bodied person on January 1 of the reporting tax year, multiplied by 1.4 and rounded to the nearest 10 hryvnias. The size of the tax social benefit is equal to 50% of the subsistence minimum for an able-bodied person (per month), established by law on January 1 of the reporting tax year.
Key words: taxes, income, personal income tax, tax exemptions, tax social benefit, tax object, budget, insurance premiums.
JEL Classification: G28, H24, J20
1. Introduction
Modern Ukrainian society took the vector for integration into the European Union and the implementation of its system.
At the stage of its formation, Ukraine has a number of social and economic problems. Their solution will increase growth for Modern Ukrainian society, which has taken the vector for integration into the European Union and the implementation of its values system, is in the process of dialectical development and constant
Corresponding author:
1 Vinnytsia National Agrarian University, Ukraine. E-mail: plahtiy@vsau.vin.ua
ORCID: http://orcid.org/0000-0002-5379-1577
2 Vinnytsia National Agrarian University, Ukraine. E-mail: fedorishina@i.ua
ORCID: https://orcid.org/0000-0003-1577-6699
3 Vinnytsia National Agrarian University, Ukraine. E-mail: tomchuk_of@vsau.vin.ua
ORCID: https://orcid.org/0000-0003-0974-8018
change. But like every country at the appropriate stage of its formation, Ukraine has a number of social eco-friendliness.
Their decision will contribute to the growth of public welfare and economic basis, the formation of the necessary amount of financial resources for conducting the necessary transformations, enhancing macrofinancial and macroeconomic stability of the state, as well as ensuring a decent standard of living for the population and the overcoming of social problems.
In September 2015, Ukraine joined the process of implementing the goals of Sustainable Development by 2030, which envisaged the achievement of qualitative and quantitative results in four areas: social welfare, economic growth, protection and preservation of the environment, and also fair justice and peace. One of the key and fundamental goals is the reduction of inequality, poverty reduction, good health and well-being, quality education, as well as decent work and economic growth (Fedoryshyna, 2017). The achievements of tasks within their framework are extremely important for ours the state and become especially relevant in the light of the need to overcome a number of social and economic problems that have emerged during independence. Among them, in the first place, one can distinguish between the social and economic university and the poverty of the population, as evidenced by numerous scientific research and statistical surveys level and quality of life of the population. In the context of the economic crisis, payments play a key role in Ukraine in the accumulation of material and financial resources necessary for managing income and budget expenditures.
In general, a long way in shaping the state budget at the expense of income over the centuries has changed: from the natural form, under the conditions of an undeveloped market economy, to the absolute use of monetary form now.
The most actual method of accumulation by the state of a social product has become fiscal payments - that is taxes that provide a lion's share of budget revenues. Today, taxes have undergone significant changes and especially the personal income tax, which requires detailed study and detail of such notion as "socioeconomic component of preferential taxation."
At present, it can be stated that the tax social benefit is intended to enable the taxpayer to reduce the calculated total monthly taxable income in the form of wages.
2. Economic crisis effects on consumer behaviour
The purpose of the article is to study the socioeconomic component of the preferential taxation of individuals.
With the independence of our country, the Individual Income Tax has undergone many transformations and repositioned. On July 5, 1991, the Law of the Ukrainian SSR "On the Income Tax on Citizens of the Ukrainian SSR, Foreign Citizens and Stateless Persons" was adopted. Its action was stopped by the Decree of the Cabinet of Ministers of Ukraine "On Personal Income Tax" as of 26.12.1992. However, on May 22, 2003, the Verkhovna Rada of Ukraine adopted the Law of Ukraine "On Personal Income Tax", which entered into force on January 1, 2004, and since January 1, 2011, TCU standards have been applied.
Due to the permanent changes in the editorial and content character of Ukraine's PIT many formal and real features are similar to the profitable taxes of the EU countries, in particular, Germany, Poland, France, which is confirmed by the ratio of the main tax objects, the list of taxpayers and administration procedures.
According to Art. 162 TCU, taxpayers are (Fedoryshyna, 2017): 1) individuals - residents who receive income from the source of their origin in Ukraine, as well as foreign incomes; 2) individuals - non-residents who receive income from the source of their origin in Ukraine; 3) tax agents (Fedoryshyna, 2017).
The object of taxation is determined according to the status of the payer. So, for a resident - is: the total monthly (annual) taxable income; income from the source of their origin in Ukraine which is finally taxed at the time of their accrual (payment, provision) and foreign incomes -income (profit) received from sources outside Ukraine. The object of taxation of a non-resident is: the total monthly (annual) taxable income from the source of its origin in Ukraine and income from the source of their origin in Ukraine, which are finally taxed when they are charged (payment, provision) (Aleskerova, 2015).
The basis of taxation is the total taxable income - any taxable income accrued (paid, provided) in favour of the taxpayer during the reporting tax period.
PIT is fiscally significant for budgets of all levels, since after the distribution through the budget system the lion's share remains at the disposal of local budgets.
However, the detailing of Individual Income Tax receipts in the context of budget classification codes indicates the need to take into account threatening trends.
The main instrument for reducing poverty is the distribution and redistribution of income, which is carried out including at the expense of taxes. Let's analyse how privileged taxation of individuals' incomes implemented in Ukraine can meet the challenges and global environment and internal challenges.
"Tax exemption" - is the fiscal legislation that provides for the taxpayer to be exempted from the obligation to charge and pay taxes and duties.
At present, there is no reason to elaborate a clear definition and the concept of "tax exemption" and "tax expenditures" enshrined in the legislation, as it will allow distinguishing the tax exemptions from the existing variety of forms of various types of tax exemptions and directly those that are classified as tax expense. Therefore, the consolidation in the TCU of a clear and unambiguous list of criteria for tax breaks and other forms of tax exemptions and exceptions to the general rules of taxation has not only theoretical but also purely practical significance.
The absence of an adequate tax-exempt minimum income for citizens in Ukraine to meet the needs of primary necessities, which accordingly is not taxed, is a serious obstacle to the growth of the welfare of the population.
3. Differences in consumer spending behaviour among age groups
We share the opinion of the researcher Aleskerova Y. (Aleskerova, 2016) that today the actual role of the non-taxable minimum is fulfilled by the tax social benefit (further - TSB), which has a number of restrictions both in size and according to the criteria for its receipt. Taking this into account, we agree with the numerous suggestions of researchers on the need to improve the TSB and substantiate their own approaches (Aleskerova, 2016).
According to the Tax Code of Ukraine, different sizes of tax social benefits are established depending on categories of taxpayers:
*100 ("normal"),
* 150,
* 200 % - the size of the subsistence minimum for an able-bodied person on January 1 of the reporting year.
Note that the size of the TSB is the subject of constant refinements. So, in the Law of Ukraine "On Personal Income Tax" as of 22.05.2003 № 889-IV for the transition period till 2007, the limit on its maximum value was established by introducing a reduction coefficient. And by 2014, the size of the TSB remained at the level of 50% of the subsistence minimum for an able-bodied person (per month) on January 1 of the reporting year, and from 01.01.2015, according to clause 1 of section XIX "Final clauses" of the TCU had to be equal to 100% of this size (that is, 1 218 UAH). However, the Law of Ukraine "On Amendments to the Tax Code of Ukraine and certain Laws of Ukraine (regarding the tax reform)" No. 71-VIII increased the size of the TSB was postponed for another year - until January 1, 2016. However, in 2016, TSB was determined at the level of 50% of the subsistence minimum for able-bodied persons with the transfer of this norm from item 1 of the XIX "Final Provisions" in subparagraph 169.1.1 paragraph of Article 169 TCU. Taking into account the inclusion of the reduction coefficient in
the main text of the Code, we estimate the likelihood of an increase in the TSB to 100% of the subsistence minimum for able-bodied persons in the near future as insignificant. In general, TSB can be called a virtual privilege because of its insignificant size (Table 1).
As can be seen from the data in Table 1, the size of the TSB for 4 years actually remained unchanged and taking into account the size of inflation - even decreased, which in our opinion converts a fixed size of the TSB to a conventional value. The fixed maximum amount of income, which gives the right to use the normal size of the TSB, also seems to us to be economically irrational in terms of strengthening the regulatory function of the tax.
Based on the values of the subsistence minimum and according to the norms of the Tax Code of Ukraine, the tax social benefit in 2017 had the following indicators: the maximum amount for the application of the tax social benefit: 2240 UAH, ordinary social benefit (100%) - 800 UAH, increased social benefit (150%) - 1200 UAH, increased social benefit (200%) -1600 UAH, the benefit in 2018 will have the following indicators: the maximum amount for the application of tax social benefits: 2470 UAH, ordinary social privilege (100%) - 881 UAH, increased social benefit (150%) - 1321.50 UAH, increased social benefit (200%) - 1762 UAH.
The tax social benefit is granted in the amount equal to 50 percent of the subsistence minimum for an able-bodied person.
4. Survey methodology
In accordance with the Law of Ukraine "On the State Budget of Ukraine for 2017" [8], the budget for 2017 includes the following social indicators:
Minimum wage in 2017: in monthly amount: from January 1, 2017 - 3200 UAH; hourly rate: from January 1, 2017 - 19.34 UAH.
Table 1
Changing the tax social benefit and its related indicators in 2011-2018
Year Marginal wage giving right to TSB The subsistence minimum for able-bodied persons as of the 1st of the reporting year Reducing factor The amount of the TSB
100% (subparagraph 169.1.1 and subparagraph 169.1.2 TCU) (col. 3 x col. 4 x 100%) 150% (subparagraph 169.1.3 TCU) (col. 3 x col. 4 x 150%) 200% (subparagraph 169.1.4 TCU) (col. 3 x col. 4 x 200%)
2011 1 320 941 50 % 470,5 705,75 941
2012 1 500 1 073 50 % 536,5 804,75 1 073
2013 1 610 1 147 50 % 573,5 860,25 1 147
2014 1 710 1 218 50 % 609 913,50 1 218
2015 1 710 1 218 50 % 609 913,50 1 218
2016 1 930 1 378 50 % 689 1 033,50 1 378
2017 2240 1600 50% 800 1200 1600
2018 2470 1762 50% 881 1321,50 1762,00
Source: The State Fiscal Service of Ukraine
Minimum wage in 2018: in monthly amount: from January 1, 2018 - 3723 UAH; in hourly rates: from January 1, 2018 - 22.41 UAH.
Subsistence minimum in 2017: for able-bodied persons: from January 1, 2017 - 1600 UAH, from May 1, 2017 - 1684 UAH, from December 1,
2017 - 1762 UAH. In average per person: from January 1, 2017 - 1544 UAH, from May 1, 2017 - 1624 UAH, from December 1, 2017 - 1700 UAH.
Subsistence minimum in 2018: for able-bodied persons: from January 1, 2018 - 1762 UAH; from July 1, 2018 - 1841 UAH; from December 1, 2018 -1921 UAH. On average, one person: from January 1,
2018 - 1700 UAH; from July 1, 2018 - 1777 UAH; from December 1, 2018 - 1853 UAH.
For children under the age of 6: from January 1, 2017 - 1355 UAH, from May 1, 2017 - 1426 UAH, from December 1, 2017 - 1429 UAH. For children aged 6 to 18 years: from January 1, 2017 - 1689 UAH, from May 1, 2017 - 1777 UAH, from December 1, 2017 -1860 UAH.
For people who have lost their ability to work: from January 1, 2017 - 1247 UAH, from May 1, 2017 - 1312 UAH, from December 1, 2017 - 1373 UAH (Fedoryshyna, 2017). The established indicators for the tax social benefit are calculated according to the following algorithm: the maximum amount for the application of the tax social benefit: the subsistence minimum for an able-bodied person on January 1 of the reporting tax year multiplied by 1.4 and rounded to the nearest 10 UAH (clause 169.4.1 TCU). The size of the tax social benefit is equal to 50% of the subsistence minimum for an able-bodied person (per month), established by law on January 1 of the reporting tax year (Section 169.1.1 TCU) (Fedoryshyna, 2017).
5. Findings
With the size of the subsistence minimum for an able-bodied person as of 01.01.2018 in the amount of 1762 UAH, the marginal revenue for application of the tax social benefit in 2018 will be:
1762 hryvnias x 1.4 = 2470 hryvnias
References:
However, the size of the minimum wage from 01.01.2018 is 3723 UAH. Therefore, less than this value cannot be charged to the employee for the monthly labour rate.
So, it turns out that the tax social benefit will not be applied to the income of the vast majority of employees, since their salaries should be higher than UAH 3723, and the maximum income for the application Tax social benefit for 2018 - UAH 2470.
The size of the General Tax Social Income for 2018 amounts to 50% of the subsistence minimum for an able-bodied person (per month) established by law on January 1 of the reporting tax year (clause 169.1.1 of the Tax Code):
1762 hryvnias 50% = 881 hryvnias.
Thus, only the workers who work under conditions of part-time work will be able to benefit from the general Tax Social Income, and this is not always the case.
6. Conclusions
The lack of relevant statistical information in Ukraine due to the lack of accounting for budget losses through the provision of Individual Income Tax benefits does not allow for the use of an adequate mathematical instrument that has been successfully used in countries such as Germany, Poland, France to determine the change in tax revenues from tax increases for tax incentives for hired workers.
The introduction of the concept of tax expenditures into domestic practice will provide a completely new impetus to the relationship around tax deductions from Individual Income Tax. Therefore, it is recommended to apply tax incentives to attract investment.
Although Ukraine is a market economy country, in our opinion, observance of these recommendations will have only a positive effect both on activating the regulatory function of the PIT and on the level of income differentiation of the population as a result.
In view of a large number of studies of domestic scientists on this issue, it is necessary to systematize tax deductions from Individual Income Tax in accordance with the concept of tax expenditures, taking into account the specifics of Ukrainian tax legislation.
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