Members of the Ukrainian Council of Business coalition, which includes 113 business associations from various sectors of the economy, took part in the committee hearings of the VRU Committee on Economic Development on the topic: “Priorities and challenges of small and medium-sized businesses in the context of the recovery of Ukraine”, which took place on 7 February 2024.
Among the topics raised: simplification of conditions for small and medium-sized businesses, deregulation, demonopolization, stimulation of enterprises in the de-occupied territories.
Opening the meeting, the chairman of the Committee on Economic Development, Dmytro Natalukha, noted that both business and the government are going through two difficult years of turbulence.
“It’s not easier now, but it’s different. And there will always be something different. And our task with you is to synchronize and adapt this otherness to the needs of both business and government. That you were comfortable working as much as possible under these conditions. And we could count on you as the blood of our state, which fills and enables the Armed Forces to defend and win back our territories. After all, our Armed Forces work and are supported by the taxes you pay,” Dmytro Natalukha said.
The Chairman of the Committee informed that at the end of January, the President of Ukraine V. Zelenskyi signed decrees on the establishment of the Council for the Support of Entrepreneurship in Martial Law and the All-Ukrainian Economic Platform “Made in Ukraine”, which should become a mechanism of communication between the government and business.
Dmytro Natalukha called on those present for a constructive, effective dialogue in order to draw conclusions and solve existing problems. In particular, to find a balance in matters of mobilization.
“Mobilization is about people, people are extremely important. But it is not only about those who go to the front. Also important are those people who stay in villages and cities, work at enterprises, providing the opportunity to work for our defenders every day. Business people are also important. And we need to find a balance in this context. Therefore, the second issue of the meeting is the need for business reservations, so that the mobilization does not become a paralysis, does not hang the locks on enterprises”, Natalukha said.
Oleksiy Sobolev, Deputy Minister of Economy of Ukraine, noted: “The direction of where to go is a security factor, an irreversible direction for joining the EU. We also expect growth in investment activity. We are currently working on improving the regulatory environment. Mass deregulation is currently underway – we are revoking several hundred permits that can be revoked.”
In his speech, Bohdan Mosunov, chairman of “4Business”, a member of the URB, focused on the state of implementation of the previous SME Development Plan, based on the results of the Parliamentary hearings of 2015, which was implemented by only 25% on average. He proposed to introduce the responsibility of officials for the approval of regulatory acts, which are first adopted without taking into account a proper expert assessment, ignoring the prescribed procedures for listening to experts, discussions, and then canceling them as impractical and interfering with business.
He also suggested making changes to the Regulations of the Verkhovna Rada regarding the adoption of regulatory acts in accordance with the Law of Ukraine on State Regulatory Policy. People’s deputies should also conduct regulatory impact analysis for their draft laws, as the Cabinet of Ministers is currently doing.
“This concerns both the development of ARV and the calculation of the administrative burden on business, it concerns consultations with business,” Mosunov said.
“Regarding micro and small businesses, it is worth not changing the current simplified taxation system, which promotes the development of small businesses. And it is worth refusing to transfer all the simple people to pay VAT” – the chairman of “4Business” expressed his comments on the National Income Strategy 2030.
Mykhailo Nepran, the first vice-president of the Chamber of Commerce and Industry, a member of the URB, focused on the key risks of the National Income Strategy 2030, such as the expansion of discretion, bank secrecy, simplification, etc. He noted that over the past 5 years, about 100 strategies were adopted, but none of them became effective and were practically not implemented.
“And in all these strategies there are obligations that the state imposes on itself, and which on business. So, as a rule, the obligations that the state took upon itself, it forgot about them, and it always successfully fulfills those obligations to the business,” Nepran said.
“We don’t need a Polish simplistic one, we have our own, high-quality one, thanks to which our small business and innovative industries are developing – despite the war,” he emphasized.
He proposed to hold a two-day discussion of the SME Development Strategy until 2027 in the first decade of March, which is now published by the Ministry of Economy for public discussion.
Mr. Mykhailo also proposed legalizing the property. “The period has come when there are the first millions in Ukraine and they must be legalized. It should be not just recognition of the right of ownership, but also its legalization. The Prosecutor General supports this idea. It is necessary to adopt an appropriate legislative act, which would recognize the existing property, and no law enforcement agencies should touch it anymore,” suggested the first vice president of the Chamber of Commerce and Industry.
Borys Emeldesh, a member of the Supervisory Board of the “Bridge Protection Council” thanked the members of the committee for their readiness for dialogue. He expressed the hope that this is the beginning of a dialogue and that such meetings will be annual, because for small businesses, the creation of such a platform is a vital necessity.
In his opinion, the National Revenue Strategy should be aimed at narrowing the scope of fiscalization exclusively to risk categories of taxpayers.
“The current version of the National Revenue Strategy envisages the destruction of the existing simplified system – the transition to total fiscalization, full commodity accounting for FOPs and the obligation to register as a VAT payer for all single tax payers after 1 million hryvnias per year. This makes a simplified general system of taxation, from which even an average business suffers,” said Borys Emeldesh.
In his presentation, a member of the Supervisory Board of the “Bridge Protection Council” also gave an example of ill-conceived application of the PRO, which is massively ignored in the country.
“Nearly 700,000 economic entities have not established the PRO. And in order to check and record these violations, the tax office needs to work for 25 years,” Emeldesh noted.
“In addition, the cost of installation and maintenance of PRO for the 2nd and 3rd groups of FOP is 10 billion hryvnias per year. And the state budget, according to economists’ calculations, can receive only 6-8 billion. This is a socially negative decision,” stressed Boris
Also, according to his data, the level of shadow on the market of excise goods, with which state institutions have been fighting in vain since 90 years, is impressive. “According to experts who work with the alcohol and tobacco markets, by the beginning of 2024, the “shadow” in the tobacco market has grown to a record 23.5%, in alcoholic products the shadow is 28%. Despite the fact that for a dozen years there have been PRO and commodity accounting.
Therefore, any expansion of overly complex tools for business is harmful until the quality of institutions is at the EU level,” Borys Emeldesh noted.
It is also necessary to take into account the interests of business when finalizing and preparing for the 2nd reading of draft law No. 10308, which provides for the modernization of procedures for the registration of temporary structures.
The deputy chairman of the All-Ukrainian Agrarian Council, Denys Marchuk, emphasized: “For farmers, the abolition of the fourth group of single tax payers is a disaster. When we talk about the transition to a general system, the state will first of all suffer, since the producers of goods will pay much less taxes than now, due to the lack of profits in wartime. At the same time, in post-war times, the abolition of the simplified system will lead to the loss of competitiveness by Ukrainian farmers compared to farmers in other countries, if they do not receive similar conditions for subsidies as in EU countries (from 250 euros per hectare of cultivated land).”
Oleg Hetman, economist, coordinator of expert groups of the Economic Expert Platform, focused the attention of those present on the institutional risks of the National Income Strategy-2030
“Specialists of analytical centers analyzed the National Strategy from a slightly different angle than business. We compared Ukraine with a number of developed and less developed European countries according to the Worldwide governance indicators. Comparisons include Poland, from which the authors of the National Strategy want to adopt a number of provisions. It is about the quality of the rule of law, the quality of public services. According to these indicators, Ukraine lags far behind even the weakest EU countries, lags behind Romania, the Czech Republic, and Hungary as much as they lag behind developed countries such as Germany, Spain, and France. Therefore, Polish instruments, Polish regulations, Polish simplification, disclosure of bank secrecy, seizure without a court decision, etc. contained in the Strategy are unacceptable proposals for Ukraine. Because what in developed countries will lead to improved tax collection and discipline, in Ukraine, with our quality of institutions, it will lead to shadowing of the economy, increased corruption, and additional business losses due to bribery. And this was very well described in his work by the famous economist Hernando de Soto, who studied underdeveloped countries like ours. The researchers’ recommendations in such situations, for countries similar to ours, are as follows – to simplify regulations as much as possible, reduce discretion, reboot those bodies that are the most corrupt with the participation of international experts. Therefore, a big request to the People’s Deputies, to the Economic and Tax Committees of the Verkhovna Rada – to pay attention to this and prevent the introduction of those instruments that are inadequate for Ukraine, and to promote the introduction of those instruments that can help us,” said Oleg Hetman.
He also added that it is worth starting with the most relevant projects at the moment: the complete restart of the ineffective BEB (No. 10088-1), as well as the restart of the two most corrupt institutions, according to business surveys, – the Customs (project No. 6490-d) and the Tax Office (project No. 9243).
“The reboot should take place according to the NABU principle: internationalists should choose the leadership, there should be a full re-certification of personnel, and the establishment of decent salaries for employees,” – believes Hetman.
“First European principles, and then European norms, not the other way around” – this was emphasized by Volodymyr Dubrovsky, senior economist of CASE Ukraine, recalling that European principles include the rule of law, control of citizens over the state, European quality of rotation of power structures.
The panelists also agreed on the need to finalize draft law No. 10166 on the special tax regime, extending it to all self-employed persons, creating favorable working conditions for them.
Oleksandr Chumak, “Association of Private Employers”, member of the URB drew the attention of legislators to the absence of a regional policy for the development of entrepreneurship in the state. He emphasized the need to implement programs that will ensure maintenance in communities, the return of relocated businesses, promote the recovery and development of entrepreneurial activity, cover the losses of enterprises from damage and destruction of property in the territories affected by the full-scale Russian invasion, including in the de-occupied territories.
“All the strategies that are currently adopted do not consider the peculiarities of such regions. And we also have to take into account that we will have de-occupied regions, where a lot of effort will have to be invested in order, firstly, to retain business, and secondly, to promote the return of business and economic development of the heavily affected areas. Starting in September 2022, we are implementing programs to restore economic activity in the region, rebuild business processes of companies, attract funds for reconstruction. But they are implemented at the expense of donors. Currently, no government program works effectively in our region, while we have the same conditions for paying taxes as in other regions, while we have additional costs to ensure safety standards, very expensive logistics, etc. We have additional needs to restore damage and destruction, but we cannot attract funds from the state. In our consultations for entrepreneurs on raising funds for recovery and development, the recommendation for lending under the “5-7-9” lending program takes the last place, and for “eRobot” – second to last, unfortunately. After the flights, businesses have to recover with their own funds, if they have any,” said Oleksandr Chumak, who represented the interests of businesses from the East.
“Small business is always an absorbent of labor force, most jobs are created in small business. If the task is to return Ukrainian citizens to Ukraine, then first of all we must think about the possibilities of developing entrepreneurial initiative and self-employment. This is the area in which Ukraine has more advantages compared to European countries. But for the development of entrepreneurship and self-employment, it is necessary to guarantee the unchanged conditions – the same simplified system of taxation”, – stressed Nadiya Bedrychuk, executive director of the Ukrainian Direct Selling Association, member of the Supervisory Board of URB.
Yaroslav Rushchyshyn, secretary of the Committee on Economic Development, commenting on the numerous proposals of business and analytical centers, noted that the deputies of the Economic Committee will contribute to solving the discussed business problems. A number of projects that were discussed at the hearings are being considered by the Economic Committee and it is possible to speed them up, according to the number – there are different opinions of stakeholders. For the productive development of projects, Mr. Yaroslav suggested that representatives of associations and analytical centers send an analyst to the Committee on the issues raised and in the near future hold a number of thematic meetings with business, on each of the important issues separately.
Among other things, the issue of the need to launch “e-Reservation”, the need for substantial revision of the new draft law on mobilization, the importance of finalization of the 5-7-9 program, the harmfulness of the current SMKOR model for SMEs and other important issues for business were also raised.
Oleksandr Marikovskyi, head of the subcommittee on regional economic cooperation and trade, Hanna Lichman, head of the subcommittee on regulatory policy, Halyna Yanchenko, member of the Committee, Head of the Temporary Committee of the VRU on the Protection of Investors’ Rights, Tetyana Korotka expressed their proposals for supporting business and the economic development of the country, deputy business ombudsman, Hrystyna Vengryniak, director of the Software Ukraine Association, member of the URB, Maryna Payanok, head of the “All-Ukrainian Association of Entrepreneurs and Consumers”, member of the coalition Council of Protecting Cities, Denis Marchuk, deputy head of the All-Ukrainian Agrarian Council, members of the URB, Yulia Drogovoz, vice – president on tax policy issues of the Ukrainian Union of Industrialists and Entrepreneurs and others.
Based on the results of the hearings, it is expected to develop recommendations for improving legislation, regulatory acts and organizational measures for the economic recovery of Ukraine.
The participants of the meeting also agreed to continue the dialogue within the framework of the next thematic systemic meetings of business representatives and parliamentarians.