To the President of Ukraine

To the Prime Minister of Ukraine

To the Chairman of the Verkhovna Rada of Ukraine

 

Position of the business community on the draft Memorandum

with the IMF and the introduction of mandatory registration

as a VAT payer for single tax payers

The Ukrainian Business Council (UBC), which is an association of business associations created to consolidate business and implement socially important reforms for the sustainable economic development of the country, comprising 126 business associations with 27,000 member companies from various sectors of the economy, expresses its respect to you and addresses the following.

Cooperation with the International Monetary Fund is an important factor in ensuring macro-financial stability in the country. Ukrainian business unconditionally supports the Government of Ukraine in its cooperation under the Memorandum between Ukraine and the IMF and in fulfilling its commitments aimed at reforming state bodies (tax and customs services), increasing transparency in public procurement, ensuring the independence of anti-corruption bodies, introducing labor relations criteria, abolishing tax exemptions for international shipments, taxing digital platforms, and eliminating tax evasion schemes, which will contribute to an increase in state budget revenues.

At the same time, the business community is concerned about one of the provisions of the draft program regarding the abolition of exemptions from mandatory VAT registration for single tax payers and the obligation to register as a VAT payer upon reaching an annual turnover of approximately UAH 1 million. The simplified taxation system was introduced specifically for micro and small businesses and provides for a simplified format of accounting and reporting. The functioning of this category of entrepreneurs solves a number of issues: it ensures economic activity, performs a social function, provides a simple start for business, ensures competition, etc.

According to URB experts, the implementation of this provision increases the risks of:

• an increase in the shadow economy, fragmentation, and closure of a significant number of sole proprietorships due to a significant increase in administrative costs for maintaining full accounting;
• slow recovery of regions (frontline, de-occupied) – complications in conducting activities against the backdrop of difficult external conditions;
• outflow of a certain number of citizens with an active entrepreneurial position abroad, increasing the labor shortage in Ukraine;

Ukrainian businesses believe it is advisable for the government to focus its efforts on implementing the following systemic solutions:

• ensure mandatory regulatory impact analysis for decisions related to revising the conditions for simplified taxation and changing the criteria for VAT registration;
• to prevent the use of sole proprietorships in tax evasion schemes, introduce clear criteria for labor relations at the legislative level to minimize the “sole proprietorship instead of hiring” scheme and a separate set of criteria to minimize “fragmentation” schemes;
• Exercise systematic control over taxpayers in sectors with a high degree of abuse and analyze supply chains, ensure monthly publication of information on average wages and tax burdens in the top 50 chains in the most risky industries;
• Conduct a complete reboot of commissions with the participation of international experts from the State Customs Service, State Tax Service, and Financial Monitoring Service.
• Legislatively enshrine quality KPIs for the BEH, STS, and SCS, which should be aimed at minimizing the tax gap.

 

Considering the above, the business community urges you to take a balanced approach in making decisions that will have a significant impact on a large number of taxpayers in the country, to take into account the proposals set out in the letter, and to review the clause of the Memorandum regarding the VAT threshold for the simplified system.

 

Sincerely,

Business Associations

Members of the Ukrainian Business Council