Business strongly opposes increased taxes during the crisis

16/ 09/ 2020

Yesterday, at an extraordinary meeting, the Government approved the draft state budget for 2021. According to the Ministry of Finance, the key priorities of the draft state budget are an increased minimum wage, road construction, purchase of new passenger cars, large-scale digitalization of the economy, etc.

Svitlana Mykhailovska EBA Deputy Director for Advocacy
The business accepts some of the provisions laid down in the budget, such as raising the minimum wage, as a negative signal. However, among other things, it is unclear what the funding sources to the state budget are. After all, there are fears that taxation for businesses will increase, which seems completely illogical during the coronavirus crisis, when it is not easy for companies to stay afloat. From open sources, the European Business Association received the text of the draft amendments to the Tax Code, which does provide for an increase in the tax burden on business, but we hope it was just a bad joke. After all, it is important to support companies now, and not to create additional obstacles for transparent business activities, so that entrepreneurs can continue their work.

Regarding the draft budget, we have several comments that we hope will be taken into account between the first and second readings in the Verkhovna Rada.

Thus, businesses hope that the draft will provide an effective automated mechanism for the timely refund of export VAT in accordance with the procedure and procedures in force during 2017-2019. After all, the late repayment of government debt to exporters has a negative impact on the operating activities of companies, as well as pricing, and liquidity in the domestic market, which may have negative consequences for the growth of Ukraine’s economy in 2021.

Given the global health crises caused by the COVID-19 pandemic, it is necessary to apply the provisions of Article 5 of the Law “On State Financial Guarantees of Public Health” to implement the program of medical guarantees with the one-year budget no less than 5% of the country’s GDP.

Also, the draft budget for 2021 provides for a significant increase (almost 40%) in revenues from alcohol production. This figure is understandable, as the alcohol industry has been demonopolized by law which creates the possibility for the privatization of distilleries and the development of production. But for transparent work, it is necessary to adopt updated conditions for licensing such production. Also, it should be noted that the excise tax on imported wine products and beer will be among the main funding source which is planned to bring more than 50% revenues. But the highest revenues are expected from imports of tobacco, tobacco products, and liquids for e-cigarettes (almost 3.5 times more than the draft budget for 2020). Given that the provisions on the labeling of liquids have not yet been approved and companies will not have time to test such a process, and therefore they cannot import liquids, there is a risk of shortfalls in the budget at the beginning of the year. Therefore, it is more than welcome to postpone the period for unlabeled liquids that have already been imported into Ukraine. Businesses have repeatedly appealed to the Government to “freeze” rates due to market stagnation and instead take measures to combat the illegal market, from which the budget can receive significant revenues. We hope that the voice of business will be heard and the increased rate of 11.6% will be reviewed.

This year, Ukraine reaffirmed its intention to become an active partner of the EU in implementing the provisions of the European Green Deal – a new program of green economic development of the European Union, the main goal of which is to achieve carbon neutrality of the European continent by 2050. Thus, the priorities include improving energy and resource efficiency, development of renewable and hydrogen energy, development of a scheme for greenhouse gas emission allowance trading, cooperation in research and innovation projects, reform of the coal sector, etc. As of now, in the current version of the draft budget, we see that the funds are allocated only to some of the above-mentioned initiatives. In other words, there are very few expenditures planned for the greening of the economy.

Regarding the forest sector, no funds are provided for measures to protect forests from fires, reforestation, creation of protective forest plantations and protective forest belts, forest management, and national inventory of the forest fund of Ukraine. There are also no funds to ensure the functioning of state forest protection.

Therefore, in the opinion of the business, it is advisable to finalize the draft budget and provide specific expenditure items in accordance with the planned priorities.

At the same time, it is categorically unacceptable to increase taxes and fees to balance budget revenues. While there is still time, it is necessary to take a more prudent approach to budget revenues and expenditures, taking into account, among other things, difficult conditions for business today and create a quality document that enables us to work effectively in 2021 instead of correcting ill-considered decisions.

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