President of Ukraine
People’s deputies of Ukraine
Prime Minister of Ukraine
Members of the Ukrainian Business Council, which includes 112 business associations of various sectors of the economy, whose members are 28,000 enterprises, analyzed the National Revenue Strategy (NSD) until 2023, which defines the direction of tax and customs reforms in Ukraine during the war and after it completion, and note that the document contains both useful and negative proposals for the economy, in particular:
The National Revenue Strategy contains a number of proposals that significantly worsen the conditions for doing business in Ukraine and create incentives for turning the Ukrainian jurisdiction into a gray zone, where there are no incentives for foreign investment and business development.
The NSD was developed without the involvement of business representatives and professional risk assessment. The application/implementation of such approaches will lead to an increase in corruption, suppression of economic recovery and shadowing of the economy, and an even greater loss of economically active citizens, therefore a number of points of the NSD need to be revised:
- Empowering the DPS to seize accounts (property) and block them until the tax debt is fully repaid without a court order. This approach carries significant corruption risks and violates the principle of presumption of innocence. It forms a precedent for the spread of the practice of blocking business through the blocking of tax invoices for all citizens of Ukraine, and establishes a violation of the constitutional principle of the presumption of innocence. Moreover, it significantly worsens the investment climate of Ukraine, which will lead to stagnation of the economy.
- Abolition of the simplified taxation system for the agricultural sector. Under current conditions, such an initiative will lead to a decrease in budget revenues at all levels, not an increase. According to the Ministry of Agriculture, the production of most agricultural crops is currently unprofitable due to the significant increase in the cost of sea logistics. At the same time, farmers continue to pay a fixed tax (as a fee for simplified accounting), and in the case of income tax, they would pay nothing. 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).
- Implementation of a progressive scale of personal income tax rates. This proposal is counterproductive, its implementation will lead to a decrease in incentives to work, complication of tax administration and violation of the principle of justice, increase of the “shadow”.
- Complication of conditions for the simplified taxation system instead of simplification of the general taxation system. A significant number of business entities that are on a simplified taxation system have chosen this path precisely for the possibility of simple business and administration, since the complexity of tax legislation and the significant risks of the general taxation system are not appropriate for small and micro-businesses. The innovation will automatically lead to an increase in corruption and shadowing of the economy.
- Narrowing the scope of application of the simplified taxation system by excluding legal entities, increasing effective tax rates to the level of the general regime (19.5%) while simultaneously complicating procedures for compliance with tax legislation, accounting and reporting. These changes will make SSO less accessible to small and micro-businesses, which will lead to their massive transition to the informal sector and a change in the residence of entrepreneurs. Ukraine is at risk of losing innovative industries that have grown precisely thanks to the incentives of SSO.
- Increase in excise duties on fuel. It will contribute to the growth of logistics costs of the entire economy and a significant increase in prices for citizens and businesses, which makes Ukrainian products more expensive and less competitive on the world market, including due to the complexity of logistics routes due to the war.
- Obtaining by DPS authorities full access to information on the amount and circulation of funds of all taxpayers, including individuals, in their bank accounts (without a court decision and criminal proceedings). It contradicts EU practice, creates significant corruption risks and will lead to a violation of privacy.
- Absence of qualitative indicators of the sequence of implementation of the NSD stages. This will make it difficult to monitor the implementation of the strategy and evaluate its effectiveness.
- Concentration of efforts exclusively on increasing budget revenues, without assessing the losses of economic growth.
According to Ukrainian business, the implementation of these provisions will negatively affect the country’s economic and investment climate, and Ukraine’s economic recovery. Overcomplicated and business-unfriendly tax legislation is unable to serve a war-weakened economy and promote rapid economic recovery. The expansion of discretionary powers of the controlling bodies, the complication of administration will provoke an even more aggressive model of interaction between the DPS bodies and taxpayers. NSD-2030 creates another redistribution of the organizational structure and staff lists. Such an approach will not ensure trust in the regulatory bodies.
Ukraine needs simple and fair taxation rules that will be implemented transparently. We demand to minimize discretion and eradicate the practice of presumption of guilt in tax and customs administration. This will create a comfortable environment for the rapid recovery of the economy.
At the same time, the NSD contains a number of important points for implementation, which business representatives have been waiting for many years, which must be implemented as soon as possible, in particular:
- Minimization of corruption: tax and customs services should take measures to prevent corruption, in particular, implement anti-corruption programs, increase transparency of their activities and strengthen control over work.
- IT: all information resources related to public finance management will be unified at the level of the Ministry of Finance and administered by an independent IT institution, which will contribute to increasing the transparency and efficiency of public finance management.
- Integration with the EU: Ukraine will be integrated with European taxation systems. In the future, this should simplify and improve the administration of taxes and fees in Ukraine.
- VAT administration: VAT taxation in Ukraine will be brought into line with the legislation of the European Union. Implementation of the above should simplify and improve the administration of VAT in Ukraine.
- Customs: Ukraine will exchange preliminary customs information with other countries, which will improve customs administration and contribute to the fight against gray imports.
The Ukrainian Business Council calls on the Cabinet of Ministers and People’s Deputies to organize an inclusive process of discussing the National Revenue Strategy, with the participation of experts and business associations, to provide economic justification for the points of the Strategy specified in the appeal, and to take into account the proposals of Ukrainian business. Based on the results of the discussions and calculations, revise the National Strategy in a number of points and adopt the updated high-quality edition of the NSD by the Cabinet of Ministers.
Best regards
Members of the Ukrainian Business Council