How to reform the simplified taxation system wisely

The shortcomings of the current booking procedure, prerequisites for the development of new settlements, household taxation, special regime for the self-employed and the simplified taxation system were discussed at the conference "Economic Recovery - Labor Criteria and Self-Employment". The meeting was held on July 22 in Kyiv. Theevent was organized by the Ukrainian Business Council together with theVerkhovna Rada Committee on Economic Development. The partners of the meeting were Help - Hilfe zur Selbsthilfe and the Economic Expert Platform.

The conference was attended by Galyna Tretiakova, Head of the Verkhovna Rada Committee on Social Policy and Veterans' Rights, Yaroslav Rushchyshyn, Secretary of the Verkhovna Rada Committee on Economic Development, and Igor Marchuk, Head of the Subcommittee on State-Business Interaction and Investments of the Verkhovna Rada Committee on Economic Development.

Among the business representatives present were: Mykhailo Nepran, First Vice President of the Ukrainian Chamber of Commerce and Industry, Borys Emeldesh, President of the VPAP, Oleksandr Baldynyuk, President of Ukrkondrom, Anatoliy Dolynnyi , Head of the Ukrainian Federation of Industrialists and Entrepreneurs, Vasyl Voskoboinyk, Head of the All-Ukrainian Association of International Employment Companies, and others.

The meeting began with a discussion of the "scheme" of using individual entrepreneurs to optimize payroll taxes. Yefrem Lashchuk, Legal Policy Specialist at the Economic Expert Platform, spoke about the reform of the simplified taxation system envisaged by the National Revenue Strategy and put forward alternative proposals from think tanks. Instead of transforming the STS into a general system, as envisaged by the National Revenue Strategy, it is necessary to add 7 points to the Labor Code of Ukraine to indicate the existence of an employment relationship. If 6 or more items are fulfilled, the work should be recognized as being performed within the framework of an employment relationship. This would close the "schemes" for tax minimization and would not harm law-abiding entrepreneurs.

Galyna Tretyakova said that the STS will be transformed in any case, as Ukraine's state system is approaching the European system. However, the transformation will take place only after the introduction of a personal data protection system and building the trust of entrepreneurs in the State Tax Service. Moreover, business has time to work with the Ministry to develop a model analogous to the STS for comfortable "migration" of companies from one system to another. The draft law No. 8143 on household taxation provides for such tax conditions.

In his speech,Yaroslav Rushchyshyn noted that a significant problem lies in the fact that some companies pay more taxes, while others pay much less. If we ignore this issue, we may face a "Tax Maidan" after the war is over.

There is a great need for economic freedoms in the country, and unfortunately, we are moving in a different direction.

Vitaliy Smerdov, Director of the Chamber of Tax Advisors, analyzed the current situation with self-employed citizens. Before the full-scale invasion, about 3-4 million people worked unofficially, without employment, registration as an individual entrepreneur or self-employed person. At present, there are about 1 million people who are self-employed but work in the informal sector due to the lack of a simplified regime for them. A special regime for the self-employed is needed, which will allow them to work officially and bring about UAH 10 billion to the state budget annually.

Myroslav Laba, expert of the Economic Expert Platform, emphasized that by transforming the STS into a general system, introducing commodity accounting and transition to VAT for microbusinesses, the government will not receive more taxes, but rather push small and microbusinesses into the "shadow".

In his speech,Ihor Marchuk noted that in addition to introducing a tax culture among Ukrainians, the state should create conditions under which people would want to pay these taxes and fees. Doing honest business should be cheaper than going underground. Only under such conditions will the "shadow" disappear in Ukraine.

The Chairman of the Subcommittee on State-Business Interaction and Investments also emphasized the lack of opportunities for comfortable business "evolution": from a self-employed person to a large enterprise. Because of this, many companies are stuck on the simplified taxation system instead of developing and increasing their capital. The state should encourage business to grow, not scare it with tax rates and complicated administration.

CASE Ukraine Senior Economist Volodymyr Dubrovsky noted that the main advantage of the STS is that there is no need to keep records of expenses, no inventory, and thus small and micro businesses have the opportunity to survive and grow. Micro, small, and medium-sized businesses have different models of operation, and it is impossible to introduce the same tax conditions and administration for them.

Mykhailo Nepran spoke about economic booking. He emphasized that the government has not yet provided clear criteria for business employees to be able to make reservations. A number of draft laws on economic booking have been registered in the Parliament, but it is still unclear what model is planned and whether it will be implemented.

Ihor Marchuk emphasized that economic reservation is a way to save the economy from falling and decline, not to save citizens from mobilization. The next wave of mobilization requires funds to support and maintain the army. It is more than UAH 1 million per year per unarmed soldier. Economic reservations can generate up to UAH 300 billion in additional budget revenues and will help keep tax revenues from operating businesses at the current level. In addition, the idea of obliging employers to train new staff during the period of employee reservation (12 months), which will be able to replace mobilized employees in the future, is being considered.

Vasyl Voskoboinyk, Head of the All-Ukrainian Association of International Employment Companies, presented the draft law No. 11405 of Ukraine "On Improving the Procedure for Employment of Foreigners in Ukraine". The purpose of this document is to attract foreigners for labor migration. The head of the association called on MPs to work together on this project.

Halyna Tretiakova noted that draft law No. 11405 needs to be significantly revised. At the same time, it is extremely important to improve the system of mobilization and recruitment - it is necessary to ensure high-quality civilian control over the Ministry of Defense, to subordinate the JV TCC to the Ministry of Defense, and to grant recruitment centers the powers of the JV TCC. Halyna called on business representatives to join in working together on these changes.

Following the discussion, the participants reached a common opinion on all the issues discussed and agreed to work together to implement the projects discussed.