EBA Business Forum “From Shadows to Transparency” requires the expansion of trade fiscalization
The European Business Association emphasizes once again that the shadow economy causes significant damage not only to fair competition but also leads to significant losses to the state budget and poses a threat to Ukrainian consumers. Therefore, legal business calls on MPs and representatives of all authorities to prevent the rollback of the reform on the use of online PTRs and “cashback” for consumers. Besides, it is important to keep on with the de-shadowing of the economy, particularly, to complete the customs and court reforms, to ensure the creation of civilized rules for e-commerce. Thus, on November 16, there was the EBA Business Forum “From Shadows to Transparency” during which the business community and representatives of the Presidential Administration and MPs of Ukraine discussed the issues in question.
Thus, Viacheslav Sklonny, Chief Commercial Director, Foxtrot, stated that the growth rate of legal imports exceeded the growth rate of sales of the main categories of home appliances and consumer electronics in January-September 2020 compared to the same period in 2019. He stressed that, based on these facts, one may suggest that the share of gray imports in the market decreased after April 2020. At the same time, the CBR researchers have made another logical assumption that the reduction of gray imports due to restricted movement of individuals across the border during the quarantine is the main factor in exceeding the growth rate of imports over sales growth for smartphones, TVs, and kitchen appliances.
If we take as a basis the expert assessment of the share of gray imports in the market value in 2019 (according to GFK) and take into account the dynamics of legal imports and sales in May-August 2020, the calculation shows a reduction in the share of gray imports in the “anti-leaders” categories of 2019 (for example, smartphones: reduction of the share of gray imports from 29% in 2019 to 20% in May-August 2020 in the value of the market).
In general, according to him, in the market of household appliances and electronics, the calculation shows a decrease in the share of gray imports from 23% to 16% in monetary terms. However, there is a risk that the reduction in gray imports due to quarantine restrictions on border crossings by individuals is situational and short-term. Quarantine restrictions probably did not affect other channels of illegal imports, namely: inaccurate declaration, “postal smuggling” – sending by courier to individuals, corrupt “special conditions” for gray importers. Overcoming gray imports, in the long run, requires systematic countering of gray imports by customs and law enforcement, namely, to prevent customs corruption, and increase seller accountability through fiscalization and the obligation to explain the origin of goods.
Yevhen Shkola, Head of the Legal Department of Samsung Electronics, opened a case regarding the lack of civilized rules for e-commerce due to the lack of mechanisms to prosecute violators and unregulated activities of marketplaces and price aggregators. “The market is developing rapidly, and the consumer has several options for buying goods. Online shopping is often a convenient way, but for the most part, it is they who expose the consumer to danger, because the rules of its regulation are outdated. How to reduce these risks? The answer is simple, with the help of a fiscal check, which records the fact of the contract of sale. This will help to realize their rights in the network of service centers, “Mr. Shkola explained. He also added that representatives of the EBA Consumer Electronics Committee have developed the concept of “Consumer +”, an application that, ideally, should contain information about the seller, its address, certification, etc. Finally, he called on public authorities to initiate the development of such an application so that consumers can protect their rights. Also, the sociological group Rating, surveying 2,000 respondents in November 2020, cited a figure that 68% of users of the Diia platform would like to have a “Consumer +” page, which will contain electronic fiscal checks, warranty cards, and a list of businesses that do not have problems with identification as the business entity.
Andriy Voronin, CEO, Fondy Ukraine, spoke about new business opportunities from the use of software PTRs, which, first of all, are cheaper to maintain and operate under simplified rules for e-commerce. Currently, the business does not need to buy a traditional cash register or hire a separate accountant, because all administration is done online. At the same time, Mr. Voronin explained to the business how to connect the cash register with the State Tax Service to be able to use a free software solution on the same day of its installment.
The idea of using a cash register in a smartphone also gained active support from Lada Pyrozhkova, entrepreneur, CoffeeHot (a member of the Unlimit Ukraine project). Also, Ms. Lada noted that she supports the de-shadowing of the economy because, in order for small businesses to operate successfully in Ukraine and enter international markets, it is important to bring Ukraine’s economy out of the shadows and introduce civilized rules of doing business. It is under these conditions that Ukrainian companies will be able to develop and create new jobs.
Also, an interesting case was made by Oleg Karmazynsky, an expert of the EBA Customs Committee, who demonstrated in figures how the use of the simplified taxation system, for instance, turns the illegal sale of household appliances in Ukraine a lucrative business. ” A large business operates under the disguise of FOP to increase its business profitability by one and a half times and makes it impossible for other law-abiding sellers of such goods to compete with,” said the expert on the example of importing a popular TV model 32 with Smart module distributed exclusively by one market operator.
Yurii Sorochynskyi, CEO, Nemiroff, said that despite the mandatory use of PTRs, 50% of the market is in the shadows and the reasons are ineffective state control tools. At the same time, as Sorochinsky clarified, the exception is the sale of goods through national retail chains, “which certainly do not pass the shadow alcohol through its sale points.” According to Yurii, to combat the illegal market in Ukraine, it is necessary to strengthen control over the production and circulation of alcohol, to continue the reform of scanning stamps at the checkout and electronic consignment note. All these measures can be implemented if the PTR is introduced mandatory to all businesses, including e-commerce and HoReCa.
Visually, the control system, the situation with the shadow sector was demonstrated by Victoria Kulykova, EBA Consumer Electronics Committee manager. Besides, she presented the steps that should be taken to combat the shadow economy, including customs reform, fiscalization of the country’s economy and risky industries, the introduction of online PTRs and cashback opportunities, reduction of direct taxes.
At the same time, Yulia Kovaliv, Deputy Head of the Office of the President of Ukraine, joined the event. According to her, the de-shadowing of sectors is one of the basic things for leveling the rules of the game. This year, many steps have been taken to de-shadow sectors. Besides, due to the pandemic, the state priorities shift to supporting small and medium-sized businesses, for example, the 5-7-9 program (approaching 13 billion loans).
For her part, Svitlana Mykhailovska, EBA Deputy Director for advocacy and the moderator of the event, stressed that in the fight against the shadow economy, business and government shall partner with each other for cooperation.
The second part of the Forum includes a panel discussion of business representatives, during which participants discussed not only the cases heard, but also, in general, the damage of the shadow market for the state, fair competition and consumers. At the same time, the question that was addressed to the participants of the panel was whether the risks borne by the companies because of the shadow sector are reputational or business risks?
“Fiscalization of risky areas, which, of course, should include the jewelry industry, is a necessary condition for consumer protection. In the absence of a mandatory fiscal check, the buyer is unprotected, as is the white business itself, – said Yevheniia Chyzhevska, CEO, Pandora Ukraine. – We bear both business risks and reputational risks. Speaking of Pandora’s jewelry business in Ukraine, it is necessary to understand how many illegal goods are imported into the country. When customers come to us who claim that they have bought a product from us (but actually in the shadow market), it is very difficult to explain to them why we cannot provide a certified service, including repairs, returns, and so on. A service that rightfully belongs to our customers. We are a big business, although we have only 48 stores. All goods are certified in Ukraine, because these are products that have contact with the body and can cause allergies, etc. People in the shadows do not provide such services and do not spend effort and money on it.
Ihor Landa, CEO, BT Invest Ukraine, stressed that legal businesses create jobs, pay taxes, etc. When some businesses pay taxes and salaries, while others conduct illegal operations, it becomes obvious that the conditions are not equal. The only solution to this is the fiscalization. Also, it is fake that having a cash register will cost.
Gennady Verbylenko, CEO, Comfy TRADE: “Every new government comes with the slogan“ STOP Smuggling ”. But there is a misunderstanding of what is the cause and what is the consequence. Smuggling flows are consequences. And the reason – Ukraine is the country where it is possible to sell smuggled products absolutely with impunity. Meanwhile, the reason for this is unorganized and unregulated trade within the country. The way out is to show fair turnover and one of the options is to start with risk categories if the parliament does not dare to maintain a wider fiscalization. And the purpose of de-shadowing is not to put pressure on small businesses, but to bring businesses out of the “gray” zone. Smuggling lawyers have been stirring up the business community with fakes for a year now, trying to put pressure on legislators with other people’s hands to preserve the status quo, realizing that a fiscal check is a verdict for illegal traders. Of course, today parliamentary factions are faced with a choice – either we will go back to the 90s, or we will build a civilized European country.
Serhiy Gontar, CEO, Philips Ukraine, noted that during the quarantine period, it was a transparent business that took the brunt of supporting the country’s economy, continuing to retain staff, pay wages and taxes, as opposed to shadow business. It means that legal companies have every right to demand all players in the market with equal rules. Therefore, we hope that Laws №128 and №129 will fully enter into force in 2021, and the state will not deviate from the fiscalization of the economy.
Ihor Chervonenko, Chairman of Pharmastor LLC, presented the situation in the pharmacy sector. For his part, he supported the idea of the need for fiscalization and the importance of cash registers. “A fiscal check means first consumer protection because it means that there is information about the seller. The information about the fiscal check also remains in the PTR, in case the paper copy is lost. At the same time, the receipt of the goods does not imply the right protection functions, as it can be forged, lost, etc., ” said Mr. Chervonenko.
Thank you to all participants for a fruitful discussion. We hope that the voice of business will be heard and reforms will not be rolled back.
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