METR MODEL FOR MEASURING TAX BURDEN ON INVESTMENT IN UKRAINE

Abstract

Taxation is one of the most important determinants of investment. It has a major impact on the cost of capital and the expected net revenue from a given investment. Moreover, different tax burdens distort investment allocation. Recognizing the importance of these effects, this study tries to identify the tax induced distortions associated with the current system of taxation, and to find out which tax incentives are the most important for inducing investments in Ukraine. The study attempts to measure the real tax burden on capital investment by using the marginal effective tax rate (METR) as a quantitative indicator. The research includes both general and selective tax incentives, drawing high attention to the incentives acting through the system of corporate income taxation. The calculations are divided into two main parts: the first part - with due regard to general tax provisions (CIT – corporate income tax rate, treatment of dividends, capital recovery incentives, and import duty); the second one – with widening METR calculation by taking into account selective investment tax incentives (tax holidays, investment tax credits, preferential CIT rates). The paper also examines whether general or selective tax incentives’ implication changes the results of calculations.