Will the tax increase be implemented? Results of the meeting between business and government

Members of the Ukrainian Business Council met with officials to discuss the issues and prospects of Draft Law #11416 "On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine Regarding Peculiarities of Taxation during the Period of Martial Law".

The conference was attended by Danylo Hetmantsev, Chairman of the Parliamentary Committee on Finance, Taxation and Customs Policy, Yaroslav Zheleznyak, First Deputy Chairman, Oleksandr Kovalchuk, Deputy Chairman of the Committee, Oleksandr Sova, MP, member of the Committee on Finance, Taxation and Customs Policy, and Svitlana Vorobey, Deputy Minister of Finance of Ukraine.

Among the business representatives present were: Mykhailo Nepran, First Vice President of the Ukrainian Chamber of Commerce and Industry, Borys Emeldesh, President of the All-Ukrainian Professional Association of Entrepreneurs, Yuriy Perohanych, Director of the Association of Information Technology Enterprises of Ukraine, Dmytro Kokhan, Deputy Chairman of the All-Ukrainian Agrarian Council, and others.

Danylo Hetmantsev opened the meeting and moderated the conference. The Head of the Parliamentary Committee said that despite his own promise not to raise taxes until the end of martial law, their increase is unavoidable. After all, the needs of the army are more expensive than the state can currently afford.

"Together with the MPs, we would like to hear the proposals and alternatives of business to come to certain conclusions. Please remove from the discussion the theses about the harmfulness and negative impact of tax increases on the economy, about rising prices - we all understand this. We all understand this. But if we do not finance the military's salaries, then we will not have any issues on our agenda at all," Hetmantsev asked.

Liudmyla Gerasymenko, Vice President and Director General of the Taxpayers Association, provided statistics from open sources on the military tax revenues to the state budget. In the period from 2014 to 2022, the military tax revenues amounted to UAH 165.6 billion (including UAH 33.7 billion in 2022) or 2.4% of all tax revenues of the state budget for this period. However, it was not possible to establish the amount of military tax revenues in 2023 separately, as the amount of military tax revenues is listed together with personal income tax revenues in 2023.

"The main disadvantage of the military fee is that, despite its economic nature, it is not earmarked and goes to the general fund, and to make it true to its name, it is important to make it earmarked - through a special fund of the state budget with further use exclusively to finance payments to military personnel and other defense needs of the state. Now the public must understand and know what needs have already been met by the military fee revenues ," emphasized Liudmyla Gerasymenko.

Also, the Vice President and Director General of the All-Ukrainian NGO APPU noted that increasing the military tax to 5% for employees is an extremely harmful proposal, as it will stimulate shadowing.

Liudmyla Gerasymenko also quoted the Union of Jewelers of Ukraine: "It will be cheaper for Ukrainian ladies to travel to neighboring countries, such as Turkey, and in combination with a pleasant vacation or active business, buy jewelry there, not from Ukrainian jewelers. The military tax rate of 30% is very high and unacceptable, as it will increase the shadowing of the industry and may lead to the disappearance of domestic jewelry art, production, trade and, in particular, the legal jewelry market."

In response,Svitlana Vorobey substantiated the position of the Ministry of Finance on the problematic issues raised. The Deputy Minister said that in 2023 the government collected UAH 38 billion in military tax, and in the first six months of 2024 - UAH 20 billion . She also noted that all the funds collected in the state are used for the needs of the army. All other funds available in the state, including salaries for doctors, teachers, all social programs, even, until recently, covering the Pension Fund deficit, are funds from donors, taxpayers of other countries.

"The entire population of Ukraine should be divided into those who are fighting and those who are making money from this war. There are people who cover Ukraine with their lives, and there are people who cover those who are fighting and, in addition, those who have lost their relatives with their wealth and income. Gold and cars are luxury items during a long, tough war, not necessities. In my personal opinion, if a person has the money to buy jewelry during the war, he or she can pay 30% of the military tax and share it with the army. And 30%, I think, is not such a big amount," said Svitlana Vorobey, Deputy Minister of Finance of Ukraine.

Next, the floor was given to Halyna Zaliza, head of the Ednannia trade union organization of small and medium-sized business employees. Galyna spoke on behalf of microbusinesses, the first and second groups of individual entrepreneurs, asking to reduce the military fee, because for the smallest ones, even an additional UAH 800 per month is a significant amount.

"This is a very heavy burden. Out of 16 officially registered markets in Kamianske, 11 survive. And the companies do not work full time, and some only for 2-3 hours, because of power outages. Small businesses cannot afford to buy generators or any other alternatives," added Zaloga.

The head of the trade union organization of small and medium-sized businesses "Ednannia" drew attention to the need to put things in order with real estate taxes, to increase the collection of this tax, because currently the registers are in disarray.

Svitlana Vorobey noted that it is possible to maintain the military tax rate of 1.5%, but only if there is a compensator. However, all citizens should pay the same amount to prevent business migration from one group to another and thus prevent tax evasion.

Danylo Hetmantsev supported the Deputy Minister, because during the war everyone should pay the same amount.

Borys Emeldesh, President of the All-Ukrainian Professional Association of Entrepreneurs, noted that about 1 million self-employed people (couriers, tutors, drivers, gardeners, etc.) are currently working in the informal sector, which is a significant source of revenue for the budget. Global practice shows that if a convenient special regime is created for them, they are willing to pay turnover tax or a patent. The implementation of draft law No. 10166 solves these issues and will allow the budget to raise UAH 10 billion a year.

Yulia Chumak, representative of the Ukrainian Business Council, expressed the position of the business, which was agreed in the joint statement of the UBC, on the harmfulness of introducing a corporate turnover tax, raising the military tax on employees to 5%, and an additional tax on jewelry. The URB representative warned that these measures will not yield the estimated revenues and will significantly increase the level of shadow.

"Currently, a third of businesses in the jewelry industry operate in the shadow, and if we introduce such a fee, we expect the shadow to increase to 50% of the industry and more. Perhaps we should listen to the think tanks and instead of a number of harmful provisions of the draft law No. 11416, temporarily increase the value added tax rate, say, for a year and a half? " suggested Yulia Chumak.

The Deputy Minister of Finance accepted and supported the initiative to increase the VAT rate, as it is much easier to administer and the amount is relevant to the percentage of turnover.

The meeting was held in the format of a constructive dialog, and the participants reached a common opinion on all the issues discussed.