www.debaty.org

May 29, 2012 Teacher’s House, Kyiv, Ukraine

THE RICH SHOULD PAY HIGHER TAXES PUBLIC DEBATE BRIEF

Speakers FOR the motion Speakers AGAINST the motion

Viktor Suslov Minister of Economy of Ukraine

in 1997-1998

Igor Mazepa CEO of investment company Concorde Capital, Chairman of the Exchange Board of OJSC "Ukrainian Exchange"

Ron Barden Partner, Head of Tax and Legal of PricewaterhouseCoopers

Volodymyr Lavrenchuk CEO of Raiffeisen Bank Aval

The debate “The rich should pay high taxes” was the twenty-first public debate held by the Foundation for Effective Governance in partnership with Britain-based Intelligence Squared. Borys Krasnyansky, managing partner of PricewaterhouseCoopers in Ukraine, moderated the event.

As a result of many countries lacking finances to support public spending during the crisis, the idea of wealth redistribution has come to the fore. The notion that the rich should share more of their money with society by paying higher income taxes than the rest of the population is increasingly voiced in government and public circles. The debate on the need to increase the tax burden of the rich has become increasingly topical in Ukraine against the backdrop of a growing gap between rich and poor. Should wealthy Ukrainians pay a larger part of their income to the state than the rest of the country’s citizens?

During the debate speakers for the motion maintained that high taxes for the rich are a matter of social justice. In their opinion this may help diminish inequality in the country. In addition, the rich should pay higher taxes than others because they consume more public benefits than the rest of society. To prove their point the panelists highlighted that the wealthy dominate use of services on roads and in airports.

Speakers against the motion called for the Ukrainian government to preserve the current taxation system claiming that new taxes for the rich will encourage them to wire their money to offshore accounts. These experts believe that the country should keep flat taxes, while the government must guarantee taxpayers that public money is effectively managed.

Arguments against the motion proved more persuasive. This panel won a sure victory, gaining 12% of audience votes from an initial 39% to 51% at the end of the debate.

Public debates provide an opportunity to discuss the most topical issues of Ukraine’s economy. The project’s goals are to help the public develop an informed view on the country’s economic situation and to facilitate a culture of constructive communication about its most important problems.

Viktor Suslov: “Today hired personnel pay 15-17% income tax, depending on their salaries. In the mean time, business owners give 5% of their dividends to the state. A very powerful and far-reaching class of people of independent means object to levying taxes on bank deposits. Moreover, the rich widely entertain a tax evasion scheme via offshore accounts”.

Igor Mazepa: “Ukrainian taxpayers already pay more taxes than American citizens: a 15-17% income tax plus a 40% social tax. The main problem is ineffectiveness in managing public funds. The government either misappropriates or mismanages the money. Why then must a successful and financially independent person pay for a hopeless loser?”

Ron Barden: “The only reason that politicians suggest increasing taxes for the rich is because it is a vote winner. But all evidence shows that high taxes do not improve tax collections. People pay lawyers and tax advisers to pay lower taxes. They migrate abroad or move their money offshore and restructure their businesses so as not to pay taxes”.

Key Statements

Q&A Session with the Audience

Voting Results

C: Olexandra Kuzhel: “I am absolutely sure there is no need to raise taxes. What is necessary is to manage the budget effectively. Maybe then our taxpayers will have an incentive to pay.” Q: “We have five kinds of taxes: on bank deposits, valuables, a single social tax, a tax on dividends and a tax on hired personnel. Can they all be brought together as a single progressive tax?” A: Volodymyr Lavrenchuk: “Under current circumstances a progressive tax for private citizens will fail as half of the income is grey”. Q: “Can you define an income tax rate for the rich in Ukraine?” A: Viktor Suslov: “To begin with it must be as high as for the poor: 17% on dividends. The highest tax should be about 30%. Then we could painlessly introduce a progressive tax”. A: Ron Barden: “17%” A: Volodymyr Lavrenchuk: “17% on dividends”. A: Igor Mazepa: “20% including all social collections, but everyone has to pay: big and small, honest and dishonest, rich and poor”. Q: “How should the law be amended to stop capital outflow from the country?” A: Ron Barden: “It is impossible to stop wealth leaving the country. You need to create incentives to make the economy come out of the shadow. A person who wants to buy a yacht will not buy it in Ukraine. There is no ocean so he has no other choice but to buy it overseas. It is the same with money. He will keep it offshore. That is why introducing new taxes has no advantage”. Q: “Isn’t it fair to leave income tax as it is now, but to levy taxes on consumption and property?” A: Viktor Suslov: “That goes without saying. We have to use excise taxes more widely. We have to revise a draft on property and introduce higher taxes on expensive real estate. I am also certain that bank deposits must be subject to taxation”.

Volodymyr Lavrenchuk: “The rich should pay not only because this is a matter of social justice and public benefit, but also because they are the biggest spenders of budget money. They use an expensive infrastructure of roads and airports. Additionally, the more a person pays in taxes, the more demanding he becomes about controlling how his money is spent”.

Further information and the video version of the debates are available on:

www.debaty.org and www.feg.org.ua

FEG, 8 Illinska Str., 8th Entrance, 5th Floor Kyiv, 04070, Ukraine

tel: +380 44 501 41 00 feg@feg.org.ua

The rich should pay high taxes