National Revenue Strategy will worsen business environment in Ukraine - URB

The Ukrainian Business Council (UBC), which includes 112 business associations from various sectors of the economy with 28,000 members, has appealed to the President, Prime Minister and MPs to revise the National Revenue Strategy until 2030, as a number of its points will significantly worsen the business environment in Ukraine. The corresponding appeal was published on the website of the UBC, UNN reports.

The National Revenue Strategy contains a number of proposals that significantly worsen the business environment in Ukraine and creates incentives for turning the Ukrainian jurisdiction into a gray zone where there are no incentives for foreign investment and business development

The UBC emphasized that the strategy was developed without involving business representatives and professional risk assessment. And its implementation will lead to increased corruption, suppression of economic recovery, shadowing of the economy, and an even greater loss of economically active citizens.

In particular, the Ukrainian Business Council notes that granting the State Tax Service the authority to seize accounts (property) and block them until the tax debt is fully repaid without a court decision carries significant corruption risks and violates the principle of presumption of innocence. In their opinion, this sets a precedent for extending the practice of blocking business by blocking tax invoices to all citizens of Ukraine, enshrines the violation of the constitutional principle of the presumption of innocence, and significantly worsens Ukraine's investment climate, which will lead to economic stagnation.

In addition, the abolition of the simplified taxation system for the agricultural sector in the current conditions will lead to a decrease in budget revenues at all levels, not an increase. 

At the same time, according to the URB, in the postwar period, the abolition of the simplified system will lead to the loss of competitiveness of Ukrainian farmers compared to farmers in other countries unless they receive similar conditions  for subsidies as in the EU (from 250 euros per hectare of land under cultivation).

The Ukrainian Business Council also emphasized that the introduction of a progressive personal income tax scale is counterproductive. This will lead to a decrease in incentives to work, complication of tax administration and violation of the principle of fairness, and an increase in the "shadow".     

"Complicating the conditions for the simplified taxation system instead of simplifying the general taxation system. A significant number of business entities under the simplified taxation system have chosen this path precisely for the sake of simple business and administration, as the complexity of tax legislation and significant risks of the general taxation system are not appropriate for small and microbusinesses. The innovation will automatically lead to an increase in corruption and shadowing of the economy," the statement also reads.

It is noted that narrowing the scope of the simplified taxation system by excluding legal entities, increasing effective tax rates to the level of the general regime (19.5%), while complicating tax compliance, accounting and reporting procedures will make the STS less accessible to small and micro businesses. This will lead to their massive transition to the informal sector and change of residence of entrepreneurs. Ukraine thus risks losing innovative industries that have grown thanks to the STS incentives.

The Ukrainian Business Council notes that an increase in fuel excise taxes will increase logistics costs for the entire economy and significantly raise prices for citizens and businesses. This, in turn, will make Ukrainian products more expensive and less competitive in the global market, including due to the complexity of logistics routes due to the war.

In addition, the State Tax Service's full access to information on the volume and turnover of funds of all taxpayers, including individuals, on their bank accounts without a court decision and criminal proceedings is contrary to EU practice, creates significant corruption risks and will lead to a violation of privacy.

The Ukrainian Business Council also notes that the lack of quality indicators of the order of implementation of the NDS stages will complicate the monitoring of the strategy's implementation and evaluation of its effectiveness.

In their opinion, the Strategy focuses exclusively on increasing budget revenues, without assessing the losses of economic growth.

"According to Ukrainian business, the implementation of these provisions will have a negative impact on the country's economic and investment climate and Ukraine's economic recovery. Overly complicated and unfriendly tax legislation is unable to serve the war-weakened economy and facilitate a rapid economic recovery. Expanding the discretionary powers of controlling authorities and complicating administration will provoke an even more aggressive model of interaction between the State Tax Service and taxpayers. The STS-2030 creates yet another redistribution of the organizational structure and staffing. This approach will not ensure trust in the controlling authorities," the Ukrainian Business Council emphasized.

At the same time, they noted that the Strategy also contains a number of important points that business representatives have been waiting for many years to be implemented as soon as possible. 

The Ukrainian Business Council calls on the Cabinet of Ministers and MPs to organize an inclusive process of discussing the National Revenue Strategy with the participation of experts and business associations, provide economic justification for the points of the Strategy mentioned in the appeal, and 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 an updated qualitative version of the NDS by the Cabinet of Ministers

Recall

The government has implemented another recommendation from the IMF by publishing the National Revenue Strategy until 2030. The document envisages changes in taxation rules, an increase in excise taxes, and the adoption of EU tax and customs rules. 

Dmytro Oleksiyenko, a member of the Board of ICC Ukraine and a member of the Board of the Association of Taxpayers of Ukraine, said that the National Revenue Strategy for 2024-30 is the realization of the communist dreams of the head of the Verkhovna Rada Finance Committee, MP Danylo Hetmantsev .