ASSESSMENT OF A COUNTRY’S TAX POTENTIAL

Abstract

The aim of this article is to provide a quantitative assessment of Ukraine’s tax potential. Achieving the aim of the study involves carrying out the following tasks: identifying the components of tax potential that can be calculated on the basis of open data; and calculating the tax potential and the level of tax effort in Ukraine. In Ukraine’s tactical and strategic regulatory and legal documents, tax potential, the level of its realisation and the tax gap are not used as indicators of the state of public finances in general or the tax system in particular. The use of these indicators makes it possible to quantitatively assess tax collection efforts in the country, evaluate their adequacy and identify further directions for their development. The results of the study on Ukraine’s tax potential have shown that there is a tax gap caused both by tax losses arising from the informal sector of the economy and by the granting of tax incentives. Over the period 2015–2023, the level of tax potential realisation fluctuated between 60 and 70 per cent. Given the existence of productive tax incentives, tax potential cannot be realised to 100 per cent. The average tax potential realisation rate in countries across Europe and Central Asia – 82.5 per cent – could serve as a benchmark for further tax reform efforts. Based on the findings of international studies, Ukraine should focus not on the realised component of tax potential – achieved through changes to tax rates and other tax elements – but on the unrealised component. It is considered advisable to work actively to promote voluntary tax compliance in Ukraine, to continue legitimising the obligation to pay taxes through the optimal allocation of budgetary funds, and to combat corruption and tax evasion. Further research will focus on refining the indicators used to calculate Ukraine’s tax potential, particularly with regard to the forecast component and tax expenditures.