The President is urged to return the draft law No. 11416d to develop alternative approaches

The members of the Ukrainian Business Council (UBC), which includes 120 business associations from various sectors of the economy, are writing to Volodymyr Zelenskyy with the following:

On October 10, the Verkhovna Rada of Ukraine adopted the revised draft Law "On Amendments to the Tax Code of Ukraine on Peculiarities of Taxation during the Period of Martial Law" No. 11416-d (hereinafter - the Draft Law ), which was sent to you as the President of Ukraine on October 15 for signature, which provides for an increase in revenues to the State Budget. According to the experts of the Ukrainian Business Council, the said draft law takes into account a significant number of business proposals, but at the same time has a number of negative provisions for the stable operation of enterprises and the economy (in particular, increased military duty (MD) for employees, violation of guarantees of non-deterioration of taxation conditions by the state, guarantees of stability of taxation conditions in the legal regime of Diia.City, additional administrative burden on business without taking into account the current conditions of the frontline regions), as it mainly imposes

URB experts have analyzed the innovations presented in the draft law and, realizing the need to expand the tax base to finance the country's military expenditures, offer the following:

• Taking into account the results of comparative calculations on the amount of revenues from the increase in the VAT rate or from the increase in the VAT rate, we propose

- to leave the current ECT interest rate at 1.5% for employees' salaries and other personal income, avoiding additional financial and administrative burden on bona fide taxpayers.

- temporarily (for a period of 2 years or until the end of martial law) increase the VAT rate by 2 percentage points for those goods and services for which the rate is set at 20%, i.e., it will be increased to 22%.

Increasing the VAT rate will provide the state budget with similar amounts of revenue as from the increased military fee, but will have much less negative consequences for the economy and will not lead to an increase in shadow or undeclared labor.

• Differentiate the military fee for private entrepreneurs according to the size of their business.

It is advisable to differentiate the military tax rate for different groups of sole proprietors according to the amount of income of entrepreneurs, introducing a rate for group 2 sole proprietors several times lower than the rate currently agreed in the draft law as a basis, and for group 1 single tax payers (STP) - even lower than for group 2 STP.

• Provide guarantees of compliance with taxation conditions in the Diia.City legal regime

Adoption of the draft law in the proposed form will significantly worsen the investment climate for the IT industry in Ukraine. According to the Law of Ukraine "On Stimulating the Development of the Digital Economy in Ukraine" No. 1667-IX dated July 15, 2021, the state guaranteed the unchanged conditions for the Diia.City regime for at least 25 years.

The provisions of the draft law No. 11416-d, which actually change the conditions of the Diia.City regime, will lead to negative consequences, including a deterioration in the competitiveness of Ukrainian companies in the international market due to an increase in the cost of services, the withdrawal of some companies from the Diia.City legal regime, the non-use of gig contracts as a form of cooperation due to the loss of tax efficiency, and will also confirm the risks for investors that Ukraine will not comply with its own legislation on the unchanged conditions for business.

It is extremely important to ensure the stability of taxation conditions for Diia.City residents for the further recovery and development of the industry, to ensure unconditional confidence of investors in compliance with the law in the country and to fulfill their own guarantees for business, which is important as an economic and political factor of attractiveness of working in Ukraine.

• Deadlines for reporting on the amount of income accrued (paid) in favor of individual taxpayers.

Along with the adoption of the rule on the transition to monthly reporting, clear government guarantees and specific deadlines for the implementation of economic booking should be established. In the absence of the Government's guarantees, the current rules look only like a complication of administration for small and microbusinesses, burdening SMEs with counterproductive reports, increasing costs, which will negatively affect the financial performance.

Ukrainian business calls on you to return the Draft Law #11416d to the Verkhovna Rada of Ukraine with a proposal to develop an alternative approach to taxation changes as outlined above and resolve the issues set forth in the joint appeal of Ukrainian business.

At the same time, we urge you to help intensify the efforts of the Parliament and the Government to reduce secondary budget expenditures and minimize shadow schemes, and to speed up the reboot of the Bureau of Economic Security of Ukraine and the State Customs Service of Ukraine.