Members of the Ukrainian Business Council met with parliamentarians to discuss restarting state bodies, finding alternatives to tax increases, etc. The meeting took place on August 9, 2024 in Kyiv. The meeting was organized by the Ukrainian Business Council, partners – Help–Hilfe zur Selbsthilfe e.V. and the Economic Expert Platform.

Among the representatives of the committees of the Verkhovna Rada, the head of the Verkhovna Rada Committee on the Organization of State Power, Local Self-Government, Regional Development and Urban Planning Olena Shulyak, the first deputy head of the Committee on Finance, Tax and Customs Policy Yaroslav Zheleznyak, members of the Verkhovna Rada Committee on Finance, Tax and of customs policy Oleksiy Ustenko and Halyna Vasylchenko.

The meeting was opened by Olena Shulyak, who explained the current situation regarding draft law 11416 “On Amendments to the Tax Code of Ukraine and other laws of Ukraine regarding the peculiarities of taxation during martial law”. The head of the Verkhovna Rada Committee on the Organization of State Power, Local Self-Government, Regional Development and Urban Planning emphasized her desire to find complementary alternatives, but emphasized the need to replenish the budget — the main goal of this draft law.

“I am sure that we will find such a balanced solution that, on the one hand, will allow us to find additional funds for financing our army, and on the other hand, we will find ways to make those reforms that business is so expecting. And finally, this is a question of justice, which is very sensitive for Ukrainian business today. Unfortunately, today’s white business is unprotected, not competitive compared to those enterprises that work in the shadows or in the gray zone.” — said Olena Shulyak

Yaroslav Zheleznyak thanked business representatives for their support and active work on the future reform of the Bureau of Economic Security of Ukraine. However, this is not the end, the initiative of business associations is needed in the future to select candidates for the position of Director of the Bureau, as well as members of the commission for re-certification of current and new BEB employees for key positions, re-certification of BEB employees and selection of the Supervisory Board. These steps will contribute to the success, reduce the risk of “failure” of the reform and increase its effectiveness for enterprises, first of all.

Regarding the reform of the State Customs Service of Ukraine, the story is very similar. Most of the changes will take place according to the example of the already developed BEB reform. Draft law No. 6490-d on the reset of customs has been adopted as a basis, is currently being finalized by the Committee and will soon undergo a second reading. The business is given the opportunity to nominate candidates for the position of the head of the Service, members of the disciplinary commission and those who will carry out re-certification of the DMS.

Olena Khotenko, a representative of the Association of Taxpayers of Ukraine, thanked the people’s deputies for the implementation of important reforms and emphasized that business is ready to actively support the restart of the BEB, DMS, DPS.

“Rebooting the BEB, customs, tax, changing the administration system, administration methods — these are the most important steps in overcoming the shadow sector. It is necessary to create a level playing field for white business, minimize tax evasion.” – commented Olena Khotenko.

O. Khotenko also spoke about the extremely negative impact of tax increases on business functioning. The calculations of the Ministry of Finance under draft law No. 11416 are extremely inaccurate and exaggerated, they do not take into account the increase in shadowing from the increase in taxes. Olena Khotenko also drew attention to perspective project No. 11090 regarding additional revenues to the budget.

“Business representatives identified the most negative norms of project No. 11416 – this is a turnover tax, a tax on salaries 5%, a tax on jewelry 30%, a tax on cars 15%.

Specialists of business associations have reasonable alternatives to the harmful regulations of project No. 11416 – they consist in using the potential of the property tax, reducing state budget expenditures, in particular state procurement for higher education, minimizing shadow schemes, and temporarily raising the VAT rate by several percentage points.” — noted the representative of the APPU

Dmytro Mykhaylenko, Head of the Tax Committee of the Chamber of Commerce and Industry of Ukraine, presented alternative ways of filling the budget instead of those presented by the Ministry of Finance. One option is to increase the value added tax as opposed to charging a percentage of turnover. After all, VAT administration is established and understandable to enterprises.

Sales tax is actually toxic. Depending on the number of links in the economic chain, it significantly increases the tax burden. Or will lead to certain distortions in economic transactions, when economic agents will be forced to engage in commission or agency transactions. – Dmytro Mykhaylenko noted.

Also among the necessary steps: optimization of state expenditures and control of the earnings of individuals working in the informal sector, without registering the enterprise.

Yaroslav Zheleznyak supported business representatives and emphasized the shortcomings of the Ministry of Finance.

Olena Shulyak also noted the negative impact on the industry of mobile operators and jewelry. After all, increasing tax liabilities in these sectors will increase the shadow share.

Myroslav Laba, a specialist of the Economic Expert Platform, also presented alternatives to draft law #11416. One of the proposals is to increase the share of personal income tax paid to the state budget by employees of the public sector (ministries, departments, state-owned enterprises, etc.).

Yaroslav Zheleznyak supported the idea, but put forward a proposal for its correction. Instead of increasing personal income tax, it is better to increase the military levy for positions created by the state to 10%. Thus, a percentage of tax collections will immediately go to the state budget for defense needs. Thus, a percentage of tax collections will not go to city budgets, but will go directly to the state.

Olena Shulyak noted that it will be extremely difficult to reduce the share of personal income tax that goes to local budgets, it is necessary to create a working group and comprehensively work out this issue together with local self-government associations.

Halyna Vasylchenko, People’s Deputy of Ukraine, emphasized the urgent need to expose shadow business. According to the data announced in the committee, up to 3 trillion hryvnias are in the “shadow”, so, first of all, it is necessary to work on reforms for their legalization. Galina Vasylchenko also drew attention to local taxes. It is important to change the tax code for the administration of local taxes and fees. Currently, draft law No. 11067 “On Amendments to the Tax Code of Ukraine and other legislative acts on improving property tax administration” has been developed. Thanks to effective administration, the state will receive an additional 20 billion hryvnias.

Oleksiy Ustenko, People’s Deputy of Ukraine, spoke about the prospects of overcoming the illegal market of excise goods. Currently, “shadow” trade in tobacco products reaches 19%, alcohol and fuel – 41% and 18%, respectively. The potential of additional revenues to the budget from the overlap of “shadow schemes” is significant, it is worth focusing on this direction.

Denis Ovdienko, General Director of Pandora noted that according to preliminary calculations by industry experts – in the event of an increase in the military tax on jewelry – the shadow share in the industry will increase from the current 30% to 40-45%. After the cancellation of the 10% fee a year ago, the industry has just begun to overcome the “shadow”, the turnover has doubled in a year – and now the new regulations can break this trend.

Volodymyr Metelitsa, Ukrainian Club of Agrarian Business, said that agrarians negatively evaluate the norms of project No. 11416, instead they propose a temporary increase of VAT to 23% and personal income tax to 3% in order to simplify administration. He also spoke about the importance of introducing economic reservation for 25% of workers in the agricultural sector. In this case, according to experts’ calculations, revenues to the state budget will increase by 200 billion hryvnias per year.

Boris Emeldesh, president of the All-Ukrainian Professional Association of Entrepreneurs, spoke about the risks of abuse of the simplified taxation system.

“We believe that the SSO should be rebooted. The updated version should help minimize abuse and should aim to implement some changes.” — said Boris Emeldesh.

One of the first steps should be to define the criteria of labor relations and freelancing. It is also worth introducing a simplified regime for self-employed persons without registration and reporting. In addition, it is worth reviewing the obligations regarding the use of PPO, leaving fiscalization only for entrepreneurs who have a significant risk of exceeding the EP limits.

According to the results of the discussion, the participants reached a common opinion on all the discussed issues and agreed to work together to implement the discussed projects.