The expansion of the taxation base foreseen in amendments to the Tax Code of Ukraine that introduce a new combined system will result in an increase tax burden on insurance companies, President of Motor (Transport) Insurance Bureau (MTIBU) Yuriy Hryshan said at a press conference entitled "Collapse of the State Regulation of the Ukrainian Insurance Market" on Wednesday.

He said that most insurance companies do not make profit, or only make a small one. According to a marketing survey conducted by private joint-stock company Illichivske Insurance Society over six months in 2014, only eight insurance companies out of 17 received profits from the mandatory insurance of motor vehicles owners' civil liability (OSAGO), 10 out of 19 for voluntary medical insurance and 15 out of 17 – for voluntary car insurance (KASKO).

A sharp rise in the cost of the purchase of drugs for those insured with Illichivske Insurance Society, by 75% year-over-year, and growth in the price of spare parts for cars by 110% affected the financial state of the company.

In addition, conventional insurance companies have expenses from maintaining agent chains, which fulfill their social function.

He also said that the Ukrainian government positioned the fall in tax burden on the salary fund as the largest advantage of the tax reform of 2015. However, in the current economic conditions insurers will not use this advantage, as government promises to cut single social security taxes are impracticable.

Hryshan said that the proposed decline in the single social security tax rate is only possible with the simultaneous observation of four conditions, which is hard to realize under crisis conditions.

In addition, the proposed taxation system for 2015 has several threats: it does not have a list of expenses taken into account for defining pretax insurance profit.

Along with threats linked to the increase in profit tax, some threats found during checks by the State Fiscal Service, of which most relate to resident reinsurers, have appeared, and that they would cut the taxable base for defining pretax profit. In practice, several agreements with reinsurers were discovered to be fabricated, which led to large fines being imposed.

In addition, the transfer to the general taxation system if insurers do not post profits in their financial reports will give more grounds for supervisory agencies to conduct unscheduled checks.

Hryshan said that the government should decide which taxation system will help the normal and successful operation of the insurance market – the previous one foreseeing the taxation of revenues from insurance operations, or taxation on general conditions with a clear definition of expenses taken into account in pretax profit from insurers.