Property taxation: background of fiscal decentralization in Ukraine

Abstract

Fiscal decentralization has strengthened the capacity of governments to finance and provide public goods and services. Fulfillment of local government functions helps to balance the consumers’ individual preferences according to their needs. In Ukraine, each local authority should be entrusted with the management of the lands of relevant community in compliance with the principle of ubiquity as well as with the right to collect land tax. Local taxes on real estate and transport, typical for countries with capable local self-government, have also been introduced. Global challenges, international obligations, insufficient effectiveness of modern budgetary instruments of anti-crisis regulation make the improvement of property taxation necessary. Given new economic realities and the best world practice, it is necessary to reconsider the use of tools to support and stimulate regional development. The diversity of sources of payment and objects of taxation is one of essential problems in the collection of property tax. Its solution is the differentiated application of benefits, rates, deferrals, installments or to objects of taxation (according to the degree of participation of a property in the production process), or to entities (depending on their investment, social, environmental activity in the context of sustainable development). Such approaches are extremely important given the current trends of urbanization - their application will give the property tax an opportunity to perform the function of stimulating better use of funds and distribution of net income of enterprises and households in favor of budget revenues. Property taxes are progressive for those who have low incomes and can receive discounts when paying them. The spread of this approach during the post-crisis recovery of the national economy should be facilitated by the best practices of local authorities focused on the tax potential of SMBs. The main advantage of property taxes is a high degree of stability of the tax base. Further improvement of real estate taxation in Ukraine should focus on the prospects of its use in order to form stable sources of budget revenues and de-shadowing of property relations through the establishment of property owners. However, the risks of a low level of production incentives, as well as the understatement of the tax base through the transfer of property rights, still needs considering coordinated tax regimes for legal entities and individuals.