Zelensky's cashback: what kind of program and how much the state will pay for buying Ukrainian

How exactly will the program work, why will the state pay cashback to Ukrainians, what can they spend it on, how much will it take from the budget, and where will it come from? EP found out all the details.

What's going on?

OnFebruary 26, President Volodymyr Zelenskyy announced that the state would stimulate the consumption of Ukrainian products by paying cashback to its buyers. These funds should be credited to a special card that can be used to pay only for domestic goods.

The President's Office promised to publish the details of the program by the end of March. However, it turned out that it was much easier to say than to do and to think of an effective mechanism for implementing the plan.

The Ministry of Economy, the Ministry of Digital Transformation, monobank, retailers, the Kyiv School of Economics, Mastercard, BRDO, Gradus Research, and foreign experts are actively working on the idea.

Even at the end of April, a month after the deadline, the government was not ready to name the details of the program. However, the key conditions and mechanisms that will underlie it have now crystallized.

EP found out all the details of the program.

Who are the participants of the Cashback program?

The program will involve five parties: the seller, the manufacturer, the bank, the state platform based on Diia, and the buyer. Each of them, except the state, will have to register.

Sellers are primarily large retail chains and other stores, to which the state will set certain requirements.

First, they must operate under the general taxation system. This means that retail outlets registered as sole proprietorships or divided into several sole proprietorships will not be able to participate in the program.

Secondly, such stores must conduct fiscalization of transactions, i.e. issue receipts to customers. The stores will send them to Diia on a daily basis, confirming the purchase of Ukrainian products.

Thebank will have to send information about the transactions to Diia. Unlike a fiscal receipt, this information will contain data on the person who made the purchase. In other words, the identification of the person to whom the state will pay the cashback will be done through the bank.

Manufacturers of Ukrainian goods who want to participate in the program must also register. They will also have to register each of their products. In particular, they will provide the state with barcode information that will allow each item to be identified in a fiscal receipt.

"Diia will be in charge of verification and verification. It will compare the data from the receipt to check whether the product in question is registered as Ukrainian, as well as information from the bank to identify the person who purchased it. The state service will also determine the amount of cashback to be paid to the person and instruct the bank to credit the funds to a special card.

In order toreceive cashback from the state, aperson must "attach" one of their bank cards in Diia and give the state permission to see all transactions from it. This is a necessary condition, because without this step, the service will not be able to verify the buyer of the goods and the products they purchased. The program participant will also be given a special bank account to which cashback will be credited.

How does the Cashback program work?

A person registered in the program buys Ukrainian goods in participating stores. The store then transmits to Diia information about fiscal receipts containing data on the barcodes of the goods. If Diia finds goods on the receipts from the "white list" of Ukrainian goods, it will request information about the corresponding transaction from the bank. The payment information will help identify the buyer and confirm the fact of payment.

After that, the government will credit cashback for the purchase of Ukrainian goods. The bank will pay it to a special virtual card such as "ePidtrymky" or "eVidnuvannya". The funds will be transferred to the card once a month, but not earlier than 14 days after the purchase of the goods. This is a safeguard in case a person wants to return the purchased goods to the store in accordance with thelaw on consumer protection.

What products will be covered by cashback?

To answer this question, it is necessary to understand what goods are considered to be produced in Ukraine. For example, is a packet of tea in teabags considered Ukrainian if the tea is imported from Sri Lanka and the packaging is from Poland? The government's answer is yes. Goods for participation in the program will be determined by their barcode. Any product whose barcode begins with "482" will be considered Ukrainian, even if the share of its localization within the country is less than 5%.

"The concept is this: even if the goods are only packaged here, at least there is a line for packing, there are people who do it. Added value is created," explains an EP source in the government involved in the development of the program.

Among the goods covered by the program will be food products, which do not require additional incentives from the government, as they make up the majority of the consumer basket. Thecashback will not apply to excisable goods, including alcohol and tobacco products, so as not to encourage Ukrainians to develop bad habits. At the same time, the government is still considering whether to extend the program to medicines.

What is the cashback amount?

The government has not yet decided what the cashback percentage for purchases of Ukrainian goods will be. It is known for sure that it will not exceed 10%. It is important that the percentage returned by the state will be the same for all types of goods: food, construction materials, clothing and footwear. At the same time, the government plans to limit the maximum amount of cashback that can be received on a special card per month. It is tentatively estimated at UAH 3 thousand.

Separately, the government is thinking about how to encourage people to spend the money they receive from the state. For example, if a person does not use the cashback within three months, the amount will "burn off". This should prevent the program from "feeding" the banking system with liquidity instead of stimulating economic development.

What can cashback be spent on?

The original idea of the program was that the money earned from the purchase of domestic goods could also be spent on the purchase of "Ukrainian" goods. However, it turned out that it was difficult to implement this idea. In particular, how to ensure that cashback card payments are differentiated so that they are made only for Ukrainian goods and not for imported ones? Currently, the developers do not have a definitive answer to this question.

Therefore, the government's main working option is to allow cashback to be spent on a certain list of services, including utility bills, transportation, or medical services. It is also proposed to allow the funds received from the state to be spent on the purchase of military bonds and on donations, including United24.

According to the results of a closed sociological survey commissioned by the government, Ukrainians support the idea of using cashback to pay for utilities. This is also positive for the state, as it will reduce the debt in the system, which reaches at least UAH 40 billion (excluding electricity and gas).

Ukrainians also responded favorably to the idea of allowing cashback to be invested in military bonds. In this case, the money returned from the purchase of Ukrainian goods could be multiplied and then withdrawn and spent on the purchase of any goods or services.

In addition, investing cashback in government bonds is a kind of cashback that the state will receive by financing a program for citizens. This "cashback" will not be superfluous, as the situation with government finances is currently difficult, to put it mildly.

How much will the cashback cost and where will the money come from?

During the preparation of this material, EP heard different estimates of the cost of the program. In March and early April, it was said that it would cost UAH 22-25 billion by the end of 2024 alone. However, later versions of the concept will require much smaller amounts. Most importantly, these funds are already included in the budget for 2024.

The budget includes a program called "Supporting Domestic Demand for Domestic Goods and Services," which is allocated UAH 3 billion. According to the Ministry of Economy, this should be enough to finance the program until the end of 2024.

Earlier, the government and the President's Office reported that they plan to raise funds from external partners to finance this program. However, it is unlikely that Western countries will finance a program that could worsen the competitive position of their companies in the Ukrainian market. Therefore, the money should be found within the country.

Expenditures for the domestic demand support program, which should be used to finance Zelenskyy's idea, are not allocated to the general budget, but to a special fund. In other words, the state will not pay these funds from the "general pot" where tax revenues or foreign aid flows. They have a specific source of origin.

This source is the surplus in the accounts of the Unemployment Insurance Fund, which was formed before January 1, 2024. The surplus arose thanks to the military: due to the relatively high level of their salaries, from which contributions to the fund are paid, there was more money than was needed to pay the unemployed. As aresult , the governmentdecided to allocate about UAH 10 billion for other purposes, including supporting the consumption of domestic goods.

When will the program start?

No special law is required to launch the cashback program. The Cabinet of Ministers should launch it by adopting a resolution. However, it is not yet clear whether the state will tax cashback of Ukrainians. If not, the Verkhovna Rada will need to exempt these transactions from personal income tax by amending the Tax Code.

The government will adopt a resolution when it finalizes the final concept of the idea and the technical details of its implementation. Ukrainians should start receiving cashback from July 1, 2024.

An important point: cashback is not an open-ended story. The government is not sure whether the program will be extended to 2025. "We will make the appropriate decision depending on whether the program shows results," says an EP source in the Cabinet of Ministers. There is not much time left for this. If the government wants to extend the program, it will have to include it in the budget. According to the law, the Cabinet of Ministers must register the draft budget for 2025 in parliament by September 15.

In addition to the result, the overall situation with the availability of funds in the state budget will also affect the fate of the program. Currently, Ukraine is almost certain that in 2025 it will be able to receive at least some funding from partners, except for funds under the IMF program and the Ukraine Facility (€12.5 billion).

What are the expectations from the cashback?

What results of the program can convince government officials to extend it to 2025? At the beginning of the discussion of the concept, government and business representatives involved in its development were quite optimistic about its impact on the economy. However, the government is currently under no illusions that the program will be able to produce tangible results in the form of additional jobs or GDP growth in the short term.

Moreover, the EP's interlocutors in NGOs that cooperated with the government in developing the concept estimated that the money spent on cashback payments would be returned to the budget in the form of taxes only if producers of goods increased their production volumes by at least half.

At present, increasing tax revenues, creating jobs, or boosting GDP growth are not among the key goals of the cashback program. The key priority is to instill in Ukrainians the habit of buying Ukrainian products. Other elements of the "Made in Ukraine" strategy, including special labeling of domestic goods in stores and an information campaign, will contribute to this.

Not only citizens, but also retailers should develop the habit of buying Ukrainian products. It will be beneficial for stores to participate in the program, so they will buy Ukrainian goods and display them prominently. In addition, the program may become an additional incentive for stores to work officially and fiscalize their operations.

Another goal is to stimulate cashless payments, as cashback will be credited only for transactions made with the card. As a result, it will become less profitable for Ukrainians to buy in stores that sell goods only for cash.

Yaroslav Vinokurov