THE FISCAL IMPORTANCE OF THE SIMPLIFIED TAXATION SYSTEM IN UKRAINE

Abstract

The article explores the fiscal significance of small and medium-sized enterprises (SMEs) operating under the simplified taxation system (STS) in Ukraine. Based on quantitative analysis of budget revenues, the study reveals the growing contribution of SMEs to the formation of financial resources, particularly at the local budget level. The dynamics of tax revenues demonstrate that, despite economic instability caused by the full-scale war and global shocks, SMEs have remained a stable source of budget replenishment, thus playing a crucial role in ensuring the financial autonomy of territorial communities. The research identifies key challenges undermining the fiscal efficiency of the current model of the simplified taxation system, including the unjustified tax burden imbalance among businesses of different sectors, the artificial fragmentation of medium and large enterprises to benefit from preferential conditions, and administrative shortcomings that stimulate tax evasion practices. It is emphasized that the existing model, based primarily on the taxation of gross income, favors service providers over manufacturers and trade enterprises, distorting the competitive environment and hindering the organic development of value-creating sectors. The article substantiates the necessity of a comprehensive reform of the simplified taxation system, aimed at increasing its fiscal efficiency and eliminating structural distortions. The proposed reform directions include: transitioning to a model of taxation based on the real cash-flow (R-based Corporate Cash-Flow Tax), introducing differentiated tax rates depending on the type of economic activity, strengthening institutional mechanisms to prevent business fragmentation, and counteracting the misuse of civil contracts as substitutes for formal labor relations. Moreover, it is argued that the modernization of tax administration through active digitalization, the development of automated risk analysis and payment monitoring systems, as well as the fostering of a voluntary tax compliance culture among entrepreneurs, are critical prerequisites for enhancing the fiscal sustainability of the state. The implementation of the proposed measures is expected to expand the taxable base, improve transparency and fairness within the tax system, and ensure a stable increase in budget revenues at both local and national levels. In a strategic perspective, such transformations will contribute to the resilience of the national economy, the strengthening of public finances, and the creation of favorable conditions for the sustainable development of small and medium-sized businesses in Ukraine.