To the Chairman of the Verkhovna Rada Committee

on Finance, Taxation and Customs Policy

MR. DMYTRO HETMANTSEV

To the members of the Parliamentary Committee on Finance,

Taxation and Customs Policy

To the Minister of Finance of Ukraine

S.M. MARCHENKO

 

Regarding the exemption from VAT on imports of goods,

the customs value of which does not exceed the equivalent of EUR 150

An open appeal

Dear Danylo Oleksandrovych!

Dear Sergey Mikhailovich!

Dear Members of Parliament!

 

The members of the Ukrainian Business Council (UBC), which includes 119 business associations from various sectors of the economy, express their compliments and address the following:

The URB experts have analyzed the amendments to subparagraphs 196.1.16 of paragraph 196.1 of Article 196 of the Tax Code of Ukraine proposed by the Cabinet of Ministers in ROM #11416 regarding the taxation of imported goods shipped in international postal and express shipments, the customs value of which does not exceed the equivalent of EUR 150. According to the URB experts, the current exemption leads to a loss of state budget revenues in the range of UAH 7-9 billion per year, and creates unequal conditions between national and international e-commerce operators, as well as domestic and foreign manufacturers.

The provisions of the Draft Law No. 11416 on the taxation of international parcels are timely and appropriate, and are in line with Ukraine’s European integration course. The draft law proposes to exclude the provisions stipulating that the importation of goods whose value does not exceed the equivalent of EUR 150, except for the importation of goods whose total invoice value does not exceed the equivalent of EUR 45, for one individual recipient in one dispatch from one individual sender in international mail or in one cargo of an express carrier from one individual sender in international express shipments, is not subject to VAT, provided that such goods are sent by the sender to the recipient without any payment, are intended for personal or family use by the recipient, their characteristics and quantity do not indicate that they are imported for any commercial purpose (amendments to Articles 191, 196 of the Tax Code of Ukraine).

In relation to this issue, the OECD recently issued the Framework of Standards to Combat Illicit Trade, in which, in particular, it recognized the de minimis issue in international parcels as one of the biggest challenges for customs. In particular, it states that the use of de minimis thresholds has a negative impact on the collection of national taxes, distortion of competition, which leads to abuses of undervaluation, fragmentation of large commercial consignments, and importation of B2C goods without taxation.

At the same time, taking into account global trends and the specifics of international parcel administration in Ukraine, we consider it necessary to continue working on the administration of international parcels and implement the following steps in the coming years

– transform the burdensome for control and administration VAT on international parcels into a comprehensive national model for the movement of goods across the border, given that the “traditional” model is losing its effectiveness in the face of ever-growing volumes of small parcels. The National Revenue Strategy of Ukraine until 2030, recently approved by the Cabinet of Ministers, provides for harmonization with EU VAT legislation, in particular, in terms of revision of tax exemptions, which is planned to be phased in from 2025 to 2027;

– revise the tax-free threshold in line with EU practice and extend the collection of VAT from foreign online sellers to include low-value goods. This is a more complicated procedure than collecting VAT on cross-border purchases of digital services, as it requires additional steps in the customs processes at the border. It remains burdensome for the customs service to collect VAT at the border on a large number of low-value shipments. However, the “seller collection” model offsets this disadvantage if combined with the requirement that sellers, especially digital platforms, ensure that shipment information and VAT prepayment is transmitted along the supply chain, which will also allow for quicker border clearance.

– ensure the use of a risk analysis system when declaring goods, the introduction of an easy and convenient tax payment system, etc;

– implement a number of measures to combat possible illegal “small parcel” schemes: increasing liability for online trade in illegal goods or illegal entry of goods across the border; expanding the ability of regulatory authorities to access and evaluate data (data of importers, e-commerce platforms and suppliers);

– consider the OECD’s recommended reporting rules for digital platforms on the sharing economy and gig economy, as well as the European Union’s Directive on Administrative Cooperation 7 (DAC7), which implements this model. The DAC7 contains provisions to avoid imposing an unnecessary burden on foreign platforms that are already required to report relevant information to the tax administration in their national jurisdiction.

We call on MPs to adopt as soon as possible the amendments to the Tax Code of Ukraine regarding VAT taxation on the receipt of goods sent in international postal and express shipments with a customs value not exceeding the equivalent of EUR 150, as provided for by ROM No. 11416. At the same time, we propose to immediately hold a public discussion of the European One stop shop model for international parcels and facilitate its implementation in Ukraine during 2025-2026.

 

Sincerely yours

Business associations

Members of the Ukrainian Business Council