It is necessary to lower the "entry threshold" to Defence City for the special regime to yield expected results - Hetmantsev

Despite the launch of the special Defence City regime, which was supposed to be one of the key tools for the development of the defense-industrial complex, the current legislation needs significant refinement to achieve a real effect. In particular, the requirements for potential residents need to be softened. This opinion was expressed by the Chairman of the Verkhovna Rada Committee on Finance, Tax and Customs Policy Danylo Hetmantsev, UNN writes.

Last year, we launched the special Defence City regime. For it to start yielding the expected results, it is necessary to lower the "entry threshold" to Defence City, increase the number of its participants, and expand incentives, to which businesses rightly draw attention.

According to him, for years the state ignored the needs of the defense industry, did not purchase new equipment, did not support modernization programs, and did not stimulate design work, which led to the critical state of the industry at the beginning of Russia's full-scale invasion of Ukraine. Of several hundred enterprises in this sector, about 50 remained in working condition.

Hetmantsev added that the war became a catalyst for change and demonstrated the potential of the Ukrainian defense sector. 

The war became a challenge and highlighted numerous problems that were not generally discussed in peacetime. We are grateful to our partners and allies for multi-billion dollar military aid, the supply of weapons and military equipment, but their capabilities are not limitless, and over time this problem will become even more acute. And the domestic defense industry not only responded to this challenge – it scaled up 50 times, and very quickly transformed from a backward and degrading industry into a leading sector of the national economy, which demonstrates results.

That is why, according to the head of the parliamentary committee, the state should not only state these results, but also create conditions for their further development, in particular through the special Defence City regime.

In parallel, according to Hetmantsev, it is necessary to move from simple cooperation to full-fledged production, attract more funding from partners, increase the scale of lending and reduce the price of loans through appropriate state programs.

The MP considers the development of related industries, in particular manufacturers of components and parts of weapons, and the strengthening of personnel training to be no less important.

Recall

UNN previously wrote that the Aerospace Association of Ukraine is collecting proposals from companies working in the defense industry sector and aircraft manufacturing enterprises regarding changes to the legislation that provides for the functioning of the tax and customs special regime Defence City. Based on the results of this work, the association plans to submit the developed proposals to representatives of the Verkhovna Rada Committee on National Security, Defense and Intelligence and to participate in the further refinement of the regulatory framework of Defence City in dialogue with the government and parliament.

Let's add

Today, it is becoming clear that the special Defence City regime, which provides customs and tax preferences for enterprises in the defense industry sector and related industries, is not very popular with businesses. Market representatives in comments to UNN explain that this is due to some legislative gaps that create barriers for potential residents of the special regime.

Among the main deterrents are, in particular, unclear turnover requirements, which effectively limit access for small and medium-sized businesses to Defence City, as well as unclear requirements for auditing companies applying to join the special regime. In addition, experts point to the absence of symmetrical tax conditions. This means that companies are forced to pay VAT for parts of Ukrainian production, while this tax is canceled for imported components. The Verkhovna Rada Committee on National Security, Defense and Intelligence also already understands the need to refine the relevant legislation and is waiting for market proposals.

Another barrier, experts believe, is an overly strict norm regarding criminal proceedings. A potential resident of Defence City should not be involved in criminal cases in any way. This norm applies even to factual cases without suspicions, indictments, and verdicts. Lawyers interviewed by UNN point to a violation of the presumption of innocence.