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Business strongly opposes the steps leading to increased shadow employment

07/ 08/ 2020

Yesterday, August 6, at the request of the President of Ukraine, the Verkhovna Rada registered the draft law No.3963 “On Amendments to the Law of Ukraine  “On the State Budget of Ukraine for 2020” which proposes to increase the minimum wage to 5 thousand hryvnias from September 1, 2020.

The business is surprised by this decision as it increases the fiscal pressure on wages and causes a chain reaction of negative consequences.

There is no doubt that the increase in fiscal pressure amid the economic crisis and uncertainty will stimulate the growth of the “shadow” wage sector which will lead to lower tax revenues as some businesses will hide its activities in the “shadow”.

As a result, honest taxpayers will find themselves in worse conditions. They will incur additional costs for the payment of single social contributions while facing unfair competition from the shadow sector increased due to the adoption of the proposed draft law.

The public authorities will most likely increase pressure on the honest taxpayers in an attempt to compensate for the inevitable tax losses caused by the growth of the shadow sector.

Therefore, an ill-considered decision to increase fiscal pressure will lead to a decrease in budget revenues caused by the detenization of the economy and will selectively deteriorate the conditions of the honest business.

In fact, the burden of increased fiscal demand will be shifted to honest businesses.

At the end of July, when the initiative was first unveiled in the media, the European Business Association immediately expressed its strong disagreement with plans to increase the tax burden on wages and warned of possible consequences.

The business community proposed to start a constructive discussion on the terms and specific mechanisms for further reducing the tax burden on wages, which would be aimed both at encouraging taxpayers to pay taxes and mandatory payments and at preventing evasion schemes.

However, the reaction was not to discuss the initiative but to register a draft law that would increase fiscal pressure. It is unclear why the reasoned position of the business community has been ignored whether it was a lack of understanding of the consequences of such a draft law or a cynical hope that honest business would withstand another “fiscal blow.” However, regardless of the reasons for such disregard, the registration of the draft law can be considered as an unwillingness to start a constructive dialogue now.

The European Business Association has consistently supported high-quality initiatives aimed at de-shadowing wages and fighting the shadow economy. The honest business has repeatedly stressed the importance of such initiatives and its willingness to participate in their development and implementation.

However, according to the EBA experts, this draft law is not part of such systemic initiatives but on the contrary, it can further deepen the crisis.

The business community expects that the authorities will pay attention to the voice of the bona fide business and end the legislative chaos in the tax sphere, which has been going on for more than a year and damage primarily transparent companies. Honest business is tired of being a platform for tax experiments. The period of crisis has affected the entire business community, so now it is important to support companies instead of creating additional barriers to transparent business.

The EBA insists on the inadmissibility of the draft law №3963 unless the maximum value of the SSC accrual base is reduced to prevent an increased burden on honest taxpayers.

We hope that the authorities will demonstrate the ability for meaningful dialogue and together we will manage to work out a compromise solution.

 

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