Blue sky and yellow field: economist explains how the colors of Ukraine's flag indicate the path for post-war economic development
Kyiv • UNN
Economist Andriy Novak identified aviation and the agricultural sector as key to recovery. Pressure from the ESBU on airlines regarding leasing threatens the industry's survival.
Post-war recovery of Ukraine will require not only large-scale international investment and reconstruction of destroyed infrastructure, but also a clear understanding of which specific sectors can become drivers of economic growth. One such area is the aviation industry. This is not just about passenger transportation or logistics, but about an entire ecosystem of high-tech manufacturing, maintenance services, international trade, and innovation. This opinion was expressed in an exclusive comment to UNN by the Chairman of the Committee of Economists of Ukraine, Andriy Novak.
For the Ukrainian economy, it is certain that the aviation sphere is quite important; I would even say it is one of the most important and one of the most promising for development. This is because Ukraine is among the few countries in the world with a full cycle of aircraft production and maintenance. There are up to 20 such countries in the world today, and up to 15 with a full cycle,
It is this specific feature that creates a unique competitive advantage for Ukraine. A full cycle of aircraft production means the presence of not just individual production sites, but a comprehensive industry – from the design and manufacture of aviation equipment to repairs, maintenance, and personnel training.
After the end of the hot phase of the war, our state will need a rapid restoration of transport corridors, labor mobility, development of international trade, and the attraction of foreign investors. It is civil aviation that can become one of the mechanisms that will allow for the acceleration of Ukraine's economic recovery process.
Aviation is not just a transport sector. It is an industry with a powerful multiplier effect. The operation of airlines creates demand for aircraft maintenance, logistics, IT solutions, engineering services, personnel training, airport infrastructure, and related manufacturing.
The aviation sphere is one of the areas where Ukraine can restore and further develop its leading positions in the global economy. To put it figuratively, in principle, the key directions and key spheres of development for the Ukrainian economy are clearly reflected in the Ukrainian national flag. That is, the blue color is the sky, and what is the sky – it is the aerospace sphere; and what is the wheat field – it is the agricultural sphere,
According to him, the aerospace and agricultural spheres are the main directions where Ukraine already holds strong positions in the global economy today and can strengthen them.
The aerospace industry provides the fastest connection for the movement of both people and goods. The space industry encompasses everything currently related to communications, starting from the internet and ending with weather forecasting,
Due to the closed skies caused by the war, there is a common perception that aviation in Ukraine does not exist. However, this is not the case. Airlines were forced to relocate abroad, yet they continue to maintain personnel and technical capacities and operate under international contracts, essentially in survival mode. Foreign currency earnings from their activities return to the budget. Furthermore, aircraft repair enterprises continue to operate in Ukraine, preserving production competencies and highly qualified specialists. They are currently mainly focused on the repair and maintenance of military aviation transport.
The loss of these capabilities could cost the state too dearly. If the reduction of production capacities, the outflow of engineers, technical personnel, and pilots abroad, or the final closure of some enterprises is allowed now, after the skies open, the country risks facing a situation where the industry will have to be restored virtually from scratch.
That is why the state must already do everything possible to preserve the aviation ecosystem. This is not only about strategic planning for post-war development but also about creating conditions that will allow enterprises to survive the most difficult period. In particular, issues of supporting manufacturing enterprises, preserving human potential, predictable regulatory policy, and preventing additional administrative or fiscal pressure on business remain important.
We should add
Almost all Ukrainian airlines after 2024 faced unprecedented pressure from the Bureau of Economic Security (BES). BES investigators opened a series of criminal proceedings involving nearly 5 Ukrainian companies that lease aircraft abroad from non-resident companies of Ukraine. The Bureau is convinced that airlines should pay royalties in Ukraine—a fee charged for the use of intellectual property. At the same time, the fact that transport is not intellectual property is completely ignored, as are the Conventions for the avoidance of double taxation in force between Ukraine and a number of countries. According to these agreements, Ukrainian companies pay taxes for leasing in the countries where the leasing companies are residents. UIA, Constanta Airline, Urga, H3OPERATIONS, and Skyline suffered from BES pressure. Furthermore, court materials indicate similar approaches in other industries: they are attempting to impose an additional levy on leased railway transport and even agricultural machinery.
At the same time, the BES deliberately ignores judicial practice that does not allow taxing transport leasing as royalties.
It is important to understand that for over 30 years, the legislation regarding the taxation of leasing in Ukraine has not changed, and previously it did not raise questions or remarks from either tax or law enforcement authorities. The situation changed after the State Tax Service of Ukraine published an article on May 24, 2024, with clarifications regarding the taxation of leasing operations by airlines. Tax officials indicate that the leasing of aircraft from non-resident companies must be taxed as royalties. In doing so, the fiscal authorities juggle articles of international conventions on the avoidance of double taxation, claiming that for aircraft rentals, airlines must pay fees as if for the use of intellectual property.
Such an approach is not just an erroneous interpretation of tax law norms, both Ukrainian and international, but a "tax on the Ukrainian flag" that makes Ukrainian air carriers uncompetitive in the global market, believes Mykola Shcherbyna, an expert in transport and mechanical engineering and executive director of the Public Union "Ukrainian Air Transport Association."