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Business proposes amendments to the Tax Code of Ukraine

07/ 06/ 2022
  It is important to recover economic activities in Ukraine so that the country can hold the economic front. It is equally important to create conditions, particularly, in the context of tax regulations, so that entrepreneurs can work during the war. The European Business Association has developed a list of initiatives that are helpful for businesses and addresses Yulia Svyridenko, First Deputy Prime Minister of Ukraine - Minister of Economy of Ukraine, Serhii Marchenko, Minister of Finance of Ukraine, Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Tax and Customs Policy with a proposal to take them into account. There are general proposals regarding the importance of resuming the procedure of VAT refunds, changing the model of tax control, and abolishing scheduled tax audits (the new model of audit should be based on a risk-oriented approach; tax risks, etc.). It is necessary not to charge personal income tax on wages and financial assistance to persons living (lived) in the settlements where there are (were) hostilities; provide the right for business of the general taxation system not to pay a single social contribution for mobilized employees; not to include the non-state pension payment for the employee in the tax base of wages; equal the legal force of an electronic residence to a paper one. Also, it is necessary to simplify the regulation of the market of corporate cards in the context of reporting and the paper originals. Meanwhile, it is necessary to settle the issue of determining the tax residence of an individual. After all, some people have left the country after February 24, but they continue to work in businesses operating in Ukraine. Therefore, it is important to form a state position on determining the status of tax resident individuals - citizens of Ukraine in order to avoid double taxation of income of these persons or loss of revenue to the budget of Ukraine. Besides, it is necessary to provide the targeted financial assistance from non-profit organizations not only to special accounts of the NBU but also to all military formations, institutions, organizations, and authorities – so that the relevant needs can be met immediately. There is also a range of industrial issues and proposals. One of the largest exporters is currently in a very difficult situation. It works in the mining and metallurgical industry and before the war, as reported by the EBA members, the company used to tranship over 60% of exports through Ukrainian ports. Due to the blockade of ports, companies are forced to reduce production to 40% of pre-war levels. In order to restore production and preserve existing jobs, iron ore products are exported using military logistics using transit through European countries and departure from European ports. Logistics costs increase at least 2.5 times with this export model. Besides, raw materials and supplies are becoming more expensive. This significantly reduces the competitiveness of Ukrainian iron ore. Therefore, the EBA community proposes to reduce the rent for the use of mineral resources by 90% for the period of martial law and within 6 months after its termination. Also, it is necessary to regulate the taxation of free telecommunications services. After all, now certain categories of people who have fled abroad, for example, receive free roaming services. Providers lose part of the VAT credit, and this becomes critical with a significant increase in the volume of international roaming. Ukrainian telecommunications suppliers provided certain categories of consumers with free services, including roaming – and that was not aimed at generating profit. Thus, the obligation to pay tax for providing these services reduces the capability of such businesses to maintain an adequate level of support for the population and government agencies. In wartime, the providers need to change into a reinforced state of operation and maintenance, restoration of telecommunications networks and facilities destroyed and damaged as a result of hostilities. There are several proposals in the context of the tobacco and tobacco products market. Thus, for the period until the termination of martial law in Ukraine, the possibility to import and sell in Ukraine cigarettes with filters and heated tobacco products was allowed if there is labeling in accordance with the requirements of EU member states. Production of imported tobacco products for the Ukrainian market in other countries and its importation to Ukraine is quite a complicated process, which, according to the EBA member companies, takes several months to adjust in practice. In order not to stop the economic processes, business proposes to add the following countries to the list: Canada, the Swiss Confederation, the Republic of Turkey, the United Mexican States, the Republic of Indonesia, and the Republic of the Philippines. Besides, it is necessary to increase the period during which tobacco products can be imported in packaging marked according to the requirements of the producing country 6 months after the end of martial law in Ukraine. It is necessary to establish the base of VAT taxation for manufacturers of tobacco products - the contract price of sales of such products, and for businesses associated with control relations with manufacturers – a minimum retail price. Regarding the excisable goods, it is necessary to abolish the need to obtain a license for wholesale/retail sale of alcoholic beverages in paper and transfer the registration of such licenses exclusively to electronic form with open access. At the same time, it is worth considering the abolishment of the procedure for registering storage locations for alcoholic beverages or simplification of this procedure by implementing it on a declaration basis. The EBA has also repeatedly pointed out that the availability of the Ukrainian language in a user interface of equipment should be a competitive advantage of the product, rather than a prerequisite for its legal import into Ukraine. Moreover, as noted by some business representatives, due to the military actions, many logistics chains have been destroyed, which, in turn, may make it impossible to supply goods to the Ukrainian market from factories whose production lines provide for customization of certain goods to the requirements of the Ukrainian market, including translation of user interfaces, where this is technically possible. Therefore, experts in the household appliances & electronics industry and the automotive industry suggest allowing the import of equipment without the requirement to create a user interface in the Ukrainian language. In the context of product safety, Ukraine has already adopted and operates a number of technical regulations that establish requirements for products, including public health safety, and was developed based on relevant EU directives and regulations. Moreover, the EU product requirements are established by respective directives and regulations, while there is no sanitary and epidemiological expertise. That is why the requirement to conduct sanitary and epidemiological expertise on the condition that products comply with the requirements of technical regulations adopted in Ukraine needs reconsideration. Therefore, the business proposes to abolish the need to obtain the state sanitary and epidemiological conclusions for products covered by the technical regulations adopted in Ukraine. We hope the voice of business will be heard!

It is important to recover economic activities in Ukraine so that the country can hold the economic front. It is equally important to create conditions, particularly, in the context of tax regulations, so that entrepreneurs can work during the war.

The European Business Association has developed a list of initiatives that are helpful for businesses and addresses Yulia Svyridenko, First Deputy Prime Minister of Ukraine – Minister of Economy of Ukraine, Serhii Marchenko, Minister of Finance of Ukraine, Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Tax and Customs Policy with a proposal to take them into account.

There are general proposals regarding the importance of resuming the procedure of VAT refunds, changing the model of tax control, and abolishing scheduled tax audits (the new model of audit should be based on a risk-oriented approach; tax risks, etc.). It is necessary not to charge personal income tax on wages and financial assistance to persons living (lived) in the settlements where there are (were) hostilities; provide the right for business of the general taxation system not to pay a single social contribution for mobilized employees; not to include the non-state pension payment for the employee in the tax base of wages; equal the legal force of an electronic residence to a paper one. Also, it is necessary to simplify the regulation of the market of corporate cards in the context of reporting and the paper originals.

Meanwhile, it is necessary to settle the issue of determining the tax residence of an individual. After all, some people have left the country after February 24, but they continue to work in businesses operating in Ukraine. Therefore, it is important to form a state position on determining the status of tax resident individuals – citizens of Ukraine in order to avoid double taxation of income of these persons or loss of revenue to the budget of Ukraine.

Besides, it is necessary to provide the targeted financial assistance from non-profit organizations not only to special accounts of the NBU but also to all military formations, institutions, organizations, and authorities – so that the relevant needs can be met immediately.

There is also a range of industrial issues and proposals.

One of the largest exporters is currently in a very difficult situation. It works in the mining and metallurgical industry and before the war, as reported by the EBA members, the company used to tranship over 60% of exports through Ukrainian ports. Due to the blockade of ports, companies are forced to reduce production to 40% of pre-war levels. In order to restore production and preserve existing jobs, iron ore products are exported using military logistics using transit through European countries and departure from European ports. Logistics costs increase at least 2.5 times with this export model. Besides, raw materials and supplies are becoming more expensive. This significantly reduces the competitiveness of Ukrainian iron ore. Therefore, the EBA community proposes to reduce the rent for the use of mineral resources by 90% for the period of martial law and within 6 months after its termination.

Also, it is necessary to regulate the taxation of free telecommunications services. After all, now certain categories of people who have fled abroad, for example, receive free roaming services. Providers lose part of the VAT credit, and this becomes critical with a significant increase in the volume of international roaming. Ukrainian telecommunications suppliers provided certain categories of consumers with free services, including roaming – and that was not aimed at generating profit. Thus, the obligation to pay tax for providing these services reduces the capability of such businesses to maintain an adequate level of support for the population and government agencies. In wartime, the providers need to change into a reinforced state of operation and maintenance, restoration of telecommunications networks and facilities destroyed and damaged as a result of hostilities.

There are several proposals in the context of the tobacco and tobacco products market. Thus, for the period until the termination of martial law in Ukraine, the possibility to import and sell in Ukraine cigarettes with filters and heated tobacco products was allowed if there is labeling in accordance with the requirements of EU member states. Production of imported tobacco products for the Ukrainian market in other countries and its importation to Ukraine is quite a complicated process, which, according to the EBA member companies, takes several months to adjust in practice. In order not to stop the economic processes, business proposes to add the following countries to the list: Canada, the Swiss Confederation, the Republic of Turkey, the United Mexican States, the Republic of Indonesia, and the Republic of the Philippines. Besides, it is necessary to increase the period during which tobacco products can be imported in packaging marked according to the requirements of the producing country 6 months after the end of martial law in Ukraine. It is necessary to establish the base of VAT taxation for manufacturers of tobacco products – the contract price of sales of such products, and for businesses associated with control relations with manufacturers – a minimum retail price.

Regarding the excisable goods, it is necessary to abolish the need to obtain a license for wholesale/retail sale of alcoholic beverages in paper and transfer the registration of such licenses exclusively to electronic form with open access. At the same time, it is worth considering the abolishment of the procedure for registering storage locations for alcoholic beverages or simplification of this procedure by implementing it on a declaration basis.

The EBA has also repeatedly pointed out that the availability of the Ukrainian language in a user interface of equipment should be a competitive advantage of the product, rather than a prerequisite for its legal import into Ukraine. Moreover, as noted by some business representatives, due to the military actions, many logistics chains have been destroyed, which, in turn, may make it impossible to supply goods to the Ukrainian market from factories whose production lines provide for customization of certain goods to the requirements of the Ukrainian market, including translation of user interfaces, where this is technically possible. Therefore, experts in the household appliances & electronics industry and the automotive industry suggest allowing the import of equipment without the requirement to create a user interface in the Ukrainian language.

In the context of product safety, Ukraine has already adopted and operates a number of technical regulations that establish requirements for products, including public health safety, and was developed based on relevant EU directives and regulations. Moreover, the EU product requirements are established by respective directives and regulations, while there is no sanitary and epidemiological expertise. That is why the requirement to conduct sanitary and epidemiological expertise on the condition that products comply with the requirements of technical regulations adopted in Ukraine needs reconsideration. Therefore, the business proposes to abolish the need to obtain the state sanitary and epidemiological conclusions for products covered by the technical regulations adopted in Ukraine.

We hope the voice of business will be heard!

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