"Buy Ukrainian": How the state will give cashback for Ukrainian goods and where it will get the money

BusinessCensor has found out what is known about the Buy Ukrainian cashback program announced by Volodymyr Zelenskyy and when it will start working.

At the end of February, President Volodymyr Zelenskyy announced the launch of a new economic platform "Made in Ukraine". It is aimed at supporting domestic producers. One of the steps in this support is the launch of the Buy Ukrainian cashback program. Under this program, citizens will be able to receive compensation for part of the payment for goods and services produced in Ukraine.

"Our task is to ensure that Ukrainian money stays in the country and works here. These are taxes, salaries of our soldiers, and the capabilities of our state, including defense. We are already preparing the parameters of the Ukrainian cashback: financial and technical," Zelensky emphasized.

According to Rostyslav Shurma, Deputy Head of the Presidential Office, the program is 100% developed, but it still needs to be agreed with international partners. At the same time, the Cabinet of Ministers may approve the program by the end of March. In any case, the top officials of the state promise that the state cashback will start working this year.

"Buy Ukrainian" - what is the idea?

Buying domestic products is not a new idea. This is a remake of the programs of 1998, 2002, and 2012, recalls Yaroslav Zheleznyak, MP, First Deputy Chairman of the Committee on Finance, Taxation, and Customs Policy. "Only then it was about the 'Ukrainian Lanos', and now it is about simpler products.

The only real novelty of this proposal is that now end consumers, not businesses, will receive cashback from the state and even in real money.

However, the Buy Ukrainian program can be perceived as a kind of import substitution, as cashback is a form of subsidy. Opponents of the initiative are convinced that in the end, the domestic producers whom the government has undertaken to support will suffer.

"These slogans hide the interference in the economy by officials who restrict, prohibit, regulate, impose duties and taxes, provide subsidies and preferences. Everyone suffers because of this, including Ukrainian producers," says Volodymyr Popereshniuk, co-founder of Nova Group.

He also raises an important question: who exactly can be considered a domestic producer?

"Is a company that packs Ceylon tea in Finnish packaging in Kyiv a national producer? Is a company that bolts wheels to a car an automaker? Or maybe it's McDonald's, which makes burgers and fries? What about other restaurants? What about builders, agricultural producers, IT companies? After all, are Nova Poshta, Rozetka, ATB national producers?

And what about an employee who creates a service for an employer - is he a national producer? Is a hairdresser, a doctor, a plumber, and finally, a soldier who creates security services and protects us today a national producer? It turns out that everyone who creates, produces goods and services in Ukraine is a Ukrainian producer," says Popereshnyuk.

However, Rostyslav Shurma claims that the methodology for distinguishing local goods from non-local ones has already been developed and agreed upon. For example, he says, the seller should be a taxpayer under the general taxation system, "so that they are not evaders, but to stimulate transparent work." According to Shurma, this means that anyone who uses the simplified system, including individual entrepreneurs, will not be considered a national producer. And this, according to the Ministry of Finance, is about 1.7 million taxpayers.

"Someone can discuss the percentage of localization. But any product on the shelf, even if it is only packaged or branded in Ukraine, is already 40% of the retail price. And if it's a tax payment, then the synergy for the country is clear," added the Deputy Head of the Presidential Office.

In addition, the state itself will focus on purchasing Ukrainian goods, although this mechanism, according to Rostyslav Shurma, is still under development.

However, it is worth recalling that back in July 2022, amendments to the Law on Public Procurement came into force. According to them, there was a requirement to localize the production of certain types of equipment purchased through Prozorro for public funds. As of 2024, the degree of localization of production of such equipment in Ukraine must be at least 20%. It contains, among other things, a formula for calculating the degree of localization of goods.

How the state will pay cashback

The algorithm is simple - it was worked out during the COVID-19 pandemic, when citizens were paid the so-called "covid thousand" for vaccination. After the outbreak of full-scale war, the system was further refined, for example, through the eSupport and eRestoration programs.

"Cashback will be accrued when you buy 'Made in Ukraine' goods at retail outlets. The cashback will be accumulated on a special card, and these funds can be spent on the same products from Ukrainian manufacturers. In this way, each of us will feel our own specific impact on the economy," explains Deputy Minister of Economy Nadiia Bihun.

This means that you will need to get a special card from one of the partner banks, which will receive a percentage of the purchase of goods under the Made in Ukraine brand. The amount of this percentage is currently unknown, but according to Rostyslav Shurma, "the figure is very decent."

It is also not yet known whether the cashback amount will be limited. For example, some banks that offer cashback to their customers limit the maximum amount.

Another nuance is the issue of verification. That is, how will the state know that a particular citizen bought some goods under the Made in Ukraine program? Whether it is necessary to pay for them with a special card to which cashback will be paid, whether it is necessary to apply through Diia, or whether the control will fall on the shoulders of partner banks - the answer will become clear after the presentation of the program.

The issue of taxation also remains open. The same bank cashback is taxable: 18% of personal income tax and 1.5% of military duty are paid on its total amount. Receiving a cashback from a bank may affect the granting of a subsidy, because, according to the Tax Code, cashback is income.

Where will the cashback money come from?

According to Prime Minister Denys Shmyhal, UAH 45 billion has been allocated for business support programs this year. However, international partners will obviously bear the brunt of the burden. No wonder Shurma said that the program still needs to be agreed with them, even though it is completely ready.

According to Penny Pritzker, the US President's Special Representative for Ukraine's Recovery, the Biden administration has committed $230 million to support the Ukrainian private sector to save jobs, increase domestic and foreign demand, and stimulate tax revenues. She added that USAID also provides loans, assistance, and grants for various sectors of Ukraine's economy.

However, no one officially comments on the sources of funding for the cashback for the purchase of domestic goods. There is no money in the budget for this. This year, the state budget provides UAH 1.69 trillion for the security and defense sector. That is, almost all of the budget's own revenues, which are planned at UAH 1.76 trillion.

"We have a war economy, and we definitely don't have money for any cashback. I hope that in a few months everyone will forget about it and won't remember these initiatives, which seem to have been invented on their knees," says investment banker and financial analyst Sergiy Fursa.

What effect is expected from the program?

In fact, the idea for the "Made in Ukraine" project originated in April 2023, during the Ukraine Recovery Conference in Rome, says Deputy Minister of Economy Nadiya Bihun. "There, representatives of the Italian Ministry of Economy spoke fascinatingly about their Made in Italy initiative.

Ukraine and Italy have already agreed to promote the national brand "Made in Ukraine" on the European market with the support of Italian small and medium-sized businesses. Italian Minister of Enterprise and Production Adolfo Urso says that his country is ready to help Ukraine with specific initiatives to develop and market our products, to make the Made in Ukraine brand captivate global consumers and encourage them to buy Ukrainian products.

According to Denys Shmyhal, five tools will be used to help domestic producers in Ukraine:

• The categories of goods that the state buys from local producers will be expanded. This will also apply to defense procurement.
• Compensations - UAH 1 billion is budgeted to compensate 25% of the funds for the purchase of Ukrainian-made agricultural machinery.
• Adaptation of existing government programs to the goals of the Made in Ukraine platform. First of all, this applies to the eRestoration program, affordable loans "5-7-9%", etc.
• Grants under the "eRobota" program.
• Stimulation of consumer demand.

The total projected effect of the cashback is estimated at +0.14% of GDP, more than 22 thousand new jobs and more than UAH 4 billion in additional budget revenues.

It is difficult to say when the program will start working at full capacity, especially the part of it that relates to cashback. It is possible that it will not. Given the problems with the allocation of US aid to Ukraine, it is difficult to imagine senators willing to allocate US taxpayer money for cashback for Ukrainians. Besides, Ukraine itself has more pressing needs that require financial support.

Author: Vladyslav Nedashkivskyi