ASSESSMENT OF THE TAX BURDEN ON LABOR INCOME OF HIGHLY QUALIFIED EMPLOYEES: EXPERIENCE OF DEVELOPED COUNTRIES AND CONCLUSIONS FOR UKRAINE

Abstract

Differences in the specifics of taxable labor income formation, tax rates on labor and pension income, the availability of tax deductions and tax credit, as well as in the amount and present value of social contributions cause different levels of tax burden on a highly qualified employee in different countries. To compare the levels of the tax burden on highly qualified employees, the Human Resource Tax Analyzer model developed by specialists of the Leibniz Centre for European Economic Research (ZEW) is used. Central to the model is an effective average tax rate (EATRl) indicator, which is calculated as the difference between employee’s total remuneration before tax and the present value of income after paying taxes and social security contributions, divided by employee’s total remuneration before tax. The sequence and results of calculating the effective average tax rates on the labor income of highly qualified employees in 2023 in Ukraine, where a "flat" personal income tax rate is in effect, and in Austria, where a graduated progressive tax rate is used for seven groups of labor income, are presented. The approbation of the model for Ukraine was carried out taking into account the influence of the macroeconomic environment, which reduces the present value of pension income of highly qualified employees. According to our estimates, EATRl, taking into account macro-financial conditions in Ukraine in 2023, was 39.5%, which is lower than the average level of the tax burden on the labor income of highly qualified employees in developed countries. At the same time, this is significantly higher than the indicators of the EU countries neighboring Ukraine – Hungary, Poland, and Slovakia. The EATRl indicator, calculated on the basis of the Human Resource Tax Analyzer model, can be used to justify prospective changes to the system of personal income taxation and the collection of compulsory social contributions in Ukraine in the context of European integration and addressing certain migration challenges.