The American Chamber of Commerce in Ukraine (AmCham) opposed Bill #11416 regarding amendments to the tax law because it would discriminate against bona fide transparent taxpayers, encouraging tax evaders and increasing the shadow economy.
“Any proposed change should reflect sound tax policy and a commitment to tax compliance and tax fairness. Unfortunately, the recently proposed tax policy changes (Bill No. 11416) do not meet these principles and will further discriminate against transparent businesses, increase the distortion of competition between taxpayers and tax evaders, undermine trust and contribute to an increase in the shadow economy,” the association emphasized in a statement released by the press office on Thursday.
AmCham called on the government and law enforcement agencies of Ukraine to intensify efforts to combat the shadow economy to ensure budget revenues and fair competition.
It is noted that the association estimates that losses from illegal markets for excisable goods in the last year alone exceed $1 billion.
“Other examples illustrate the seriousness of this problem in many sectors of the economy. For example, the share of the shadow market of iPhones alone is 71%, which results in losses to the State Budget from non-payment of VAT amounting to about $135 million, while losses from tax evasion by fixed Internet providers approach $100 million annually. In the HoReCa sector, only five companies pay 31% of all taxes paid in the restaurant business, while there are more than 40,000 restaurants in Ukraine,” the association claims.
It is emphasized that the biggest concern in the proposed tax changes is the 1% profit tax, which will be applied to the income of businesses.
AmCham believes that it is such a tax that should not be introduced as it is a completely new sales tax alongside the existing VAT tax regime.
“As far as we know, no country in the world has a sales tax and VAT at the same time, as it is proposed in Ukraine,” the association stated.
AmCham has no doubt that the proposed changes will significantly increase the overall tax burden on bona fide taxpayers who report their income in a transparent and legal manner, will encourage participants of the shadow economy to redouble their tax evasion efforts as the rates will become even higher, will create significant difficulties for doing business in Ukraine, will demotivate existing businesses to invest further, and will force new investors to reconsider their business plans, will reduce foreign direct investment in Ukraine, and will reduce the tax burden on the Ukrainian economy.
In addition, the association opposed discrimination against bona fide, legitimate taxpayers due to the introduction of new taxes, such as the proposed excise tax in euros on sweetened carbonated waters, aimed primarily at U.S. and international companies.
At the same time, the American Chamber of Commerce in Ukraine understands the urgent need to broaden the tax base by extending the military levy to all categories of private entrepreneurs as well as legal entities to ensure that all taxpayers contribute to financing the fight.
However, the association’s experts believe that a sharp one-time increase in the military levy to 5% could lead to a decrease in real wages and increase the attractiveness of informal employment, so we call for a more gradual approach to increasing this percentage.
AmCham also welcomes the government’s determination to “level the playing field” by preventing unfair competition from businesses that evade tax or benefit from preferential treatment.
To this end, it is proposed to abolish the EUR150 limit on cross-border e-commerce, which makes all such parcels subject to VAT, as this is in line with European and international practice and will significantly increase tax revenues to the budget.
The Chamber is convinced that the source of additional tax revenues is the fight against tax evasion and ensuring equal rules for all, rather than increasing taxes for bona fide taxpayers, who already bear the greatest burden.
It is emphasized that discrimination against bona fide taxpayers will harm transparent business and significantly increase the shadow economy.
AmCham calls on parliament and the government, with the support of the IMF, EU and G7 member states, to ensure that taxes are distributed among all market participants so that new tax policies do not disproportionately target bona fide taxpayers in Ukraine to the detriment of further economic growth and investment.
The American Chamber of Commerce in Ukraine has urged Ukraine’s authorities to start discussions on tax reform with the business community and revise some provisions of the law with amendments to the Tax Code (bill No. 1210). “Chamber members are ready to continue providing expertise to make Ukrainian tax legislation transparent, predictable, and effective during discussions on tax reform,” the Chamber said in a press release.
According to Chamber experts, the draft law contains both favorable and unfavorable amendments for the business community.
Among the provisions that will increase fiscal pressure against bona fide taxpayers, deteriorate Ukraine’s investment attractiveness as well as negatively affect the development of the economy are the following: lack of a clear for a taxpayer algorithm of determining a reasonable economic cause (business purpose); equaling tax rates for tobacco-containing products for heating to cigarettes; increase of penalties for late payment of the agreed financial obligation and equaling transactions to the actual payment of dividends with accrual and payment of advance contributions.
The implementation of BEPS (Base erosion and profit shifting) plan is in line with the fulfillment of international obligations taken by Ukraine. However, it would be worth considering such an important and largescale changes separately, the Chamber said.
The reduction of penalties for untimely registration and non-registration of tax invoices not provided to the buyer and the abolishment of the cancellation of VAT refund on the export of soybeans and rapeseeds as well as several other amendments on improvement of tax administration are positive.
