To the Chairman of the Verkhovna Rada of Ukraine

Mr. Stefanchuk R. O.

Chairman of the Verkhovna Rada Committee on

Finance, Taxation and Customs Policy

Mr. Dmytro Hetmantsev

First Deputy Chairman of the Committee of the Verkhovna Rada of Ukraine on

Finance, Taxation and Customs Policy of the Verkhovna Rada of Ukraine

Zhelezniak Y. I.

Deputy Chairman of the Committee of the Verkhovna Rada of Ukraine on

Finance, Taxation and Customs Policy of the Verkhovna Rada of Ukraine

O. V. Kovalchuk

Minister of Finance of Ukraine

S. Marchenko

 

The members of the Ukrainian Business Council (UBC), which includes 118 business associations from various sectors of the economy, present their compliments and address the following:

On September 17, 2024, the Verkhovna Rada of Ukraine adopted as a basis the Draft Law of Ukraine No. 11416-d (hereinafter – the Draft Law), which provides for an increase in the state budget revenues. According to the experts of the Ukrainian Business Council, this draft law takes into account a significant number of business proposals, but at the same time has a number of negative provisions for the stable operation of enterprises and the economy (in particular, increased military duty (MD) for employees, violation of guarantees of non-deterioration of taxation conditions by the state, guarantees of stability of taxation conditions in the legal regime of Diia.City, additional administrative burden on business without taking into account the current conditions of the frontline regions), as it mainly imposes

URB experts have analyzed the innovations presented in the draft law and, realizing the need to expand the tax base to finance the country’s military expenditures, offer the following:

1. Taking into account the results of comparative calculations on the amount of revenues from the increase in the EPT or from the increase in the VAT rate, we propose

– to leave the current ECT interest rate at 1.5% for employees’ salaries and other personal income, avoiding additional financial and administrative burden on bona fide taxpayers.

– temporarily (for a period of 2 years or until the end of martial law) increase the VAT rate by 2 percentage points.

Increasing the VAT rate will provide the state budget with similar amounts of revenues as from the increased military fee, but will have much less negative consequences for the economy and will not lead to an increase in shadow or undeclared labor.

2. Differentiate the military tax for private entrepreneurs according to the size of their business.

It is advisable to differentiate the military tax rate for different groups of sole proprietors according to the amount of income of entrepreneurs, introducing a rate for sole proprietors of group 2 that is several times lower than the rate currently agreed in the draft law as a basis, and for group 1 of the single tax payers – even lower than for group 2 of the single tax payers.

3. Provide guarantees of compliance with taxation conditions in the Diia.City legal regime.

Adoption of the draft law in the proposed form will significantly worsen the investment climate for the IT industry in Ukraine. According to the Law of Ukraine “On Stimulating the Development of the Digital Economy in Ukraine,” the state guaranteed the unchanged conditions for the Diia.City regime for 25 years.

The provisions of the draft law No. 11416-d, which actually change the conditions of the Diia.City regime, will lead to negative consequences, including a deterioration in the competitiveness of Ukrainian companies in the international market due to an increase in the cost of services, the withdrawal of some companies from the Diia.City legal regime, and the non-use of gig contracts as a form of cooperation due to the loss of tax efficiency.

It is extremely important to ensure the stability of taxation conditions for Diia.City residents for further recovery and development of the industry.

4. Deadlines for submitting reports on the amount of income accrued (paid) in favor of individual taxpayers.

Along with the adoption of the rule on the transition to monthly reporting, there should be clear government guarantees and specific deadlines for the implementation of economic booking. In the absence of the Government’s guarantees, the current rules look only like a complication of administration for small and microbusinesses, burdening SMEs with counterproductive reports.

Ukrainian business calls on the Government and MPs to take into account the proposals of the business community, hold a professional discussion of alternatives to filling the state budget and possible cost reductions, and jointly develop optimal solutions for sources of budget revenues, their predictable and timely introduction to avoid shocks to business.

At the same time, we call on the Parliament and the Government to intensify their efforts to reduce secondary budget expenditures and minimize shadow schemes, and to speed up the reboot of the BES and the Customs.

 

Sincerely yours

Business associations

Members of the Ukrainian Business Council