Legal business requires de-shadowing the electronics market

12/ 03/ 2021

The increase in tariffs for private copying should not be carried out by exposing a greater burden on legal importers but extending the list of payers as a result of de-shadowing the market of electronics and equipment. This was suggested during a press conference at the Interfax-Ukraine News Agency. Thus, representatives of the leading business associations of Ukraine (EBA, APITU, SUP, ACC, UIPE) appealed to Verkhovna Rada to urgently consider and adopt the draft law № 4537, which provides for improving the system of collection and distribution of royalties for the so-called private copying in favor of copyright holders. The draft law not only protects the rights of authors, obliging accredited collective management organizations (CMOs) to develop and implement an online system of administration and reporting on the distribution of funds raised but also takes into account the situation with commodity smuggling which is extremely critical in Ukraine. After all, according to GFK-2020 research, every fourth smartphone and every fifth TV is imported into the country illegally with the use of various tax minimization schemes. Sofia Araslanova. CEO of the Association of Ukrainian Importers of Consumer Electronics. Commodity smuggling is a top scheme for tax evasion, and the most popular commodity group in the structure of illegal imports is equipment and electronics which occupies 21.4% of all goods imported illegally. This situation leads to the situation when a business that legally imports and sells its goods on the Ukrainian market with the payment of all mandatory and additional taxes and fees loses competition to illegally imported goods. In such difficult conditions, fees for private copying and reprography become an additional tax burden for legal business, because illegal goods enter the country without any tax and customs burden. Currently, it is proposed to significantly increase the percentage of deductions which will raise the cost of official equipment and the consumer will pay the extra money, and legal business will become even more uncompetitive. As a result, everyone loses: the consumer, legal business, the state, while the shadow market and corruption will win. The participants of the press conference called on the authorities to intensify measures to combat the shadow market and to reform the system of royalties, which currently serves as the source of corruption and an additional burden on legal business. Currently, collective management organizations authorized by the state to collect private copying and reprographic reproduction fees require importers to increase the percentage of these fees and form a new list of reprographic equipment which are subject to fee deductions. This will increase the cost of equipment by an average of 4%. Such a decision will make legal goods even more uncompetitive. Viktoriia Kulykova. EBA Consumer Electronics Committee Manager. Hennadii Smorzhevskyi, Head of the Intellectual Property Committee, the Association of Information Technology Enterprises of Ukraine, said that the market already has an unpleasant case with memory cards. Thus, one of the importers, the APITU members, had a market share of more than 70% in this group of goods, and at the beginning, he paid this fee for private copying at the tariff of 0.75%. However, now, after several years of taxation, the companys share decreased by three times. Hennadii Smorzhevskyi. Head of the Intellectual Property Committee, the Association of Information Technology Enterprises of Ukraine. Even such a relatively small percentage of deductions for private copying for certain categories of goods can be very tangible. Therefore, businesses are very sensitive to the size of these tariffs. Now, they plan to increase tariff rates from 3 to 5 times for some groups of goods. Therefore, we appeal to the authorities and ask to change the paradigm - to increase the income of authors for private copying not by increasing the fee, but by extending the list of its payers as a result of de-shadowing the market. That is, not to solve all the existing problems in the country at the cost of the legal business, but to create conditions to involve more people in paying taxes, so all those interested in economic development and Ukraine, in general, will benefit from it. But at the same time, it is necessary to create a transparent system of collection and distribution of funds for private copying, when each right holder will have access to information about the collection through an electronic cabinet and clearly understand the principles of its distribution. Andriy Yerashov, Head of the Analytical Center of the Union of Ukrainian Entrepreneurs, emphasized the need to establish a clear list of equipment from which the fee is paid, based on economic justification, taking into account technological progress because today many types of equipment have a functional limitation on copying. Andriy Yerashov. Head of the Analytical Center of the Union of Ukrainian Entrepreneurs. Manufacturers are already investing in the development and implementation of copy protection systems, such as the Digital rights management system, which prevents unauthorized digital copies of the content and makes it impossible to play and view content on other equipment, such as TV or computer. However, according to the existing legislation, even with this innovation, the company still has to pay a fee for private copying. That is, the legislation does not keep up with technological development. The European Business Association calls on the authorities not to create investment-attractive conditions for illegal business, not to overshadow the entire industry with additional financial pressure, but to promote the creation of a level playing field. In this context, we would like to suggest the following: create a transparent system of collection and distribution of copyright fees, when each right holder will have access to information about the collection and principles of its distribution through the electronic cabinet; increase the income of authors for private copying not by increasing the fee, but by expanding the list of payers as a result of de-shadowing the market; establish a list of equipment from which the fee is paid based on the economic justification of feasibility with the consideration of the latest technological progress. One of the steps to address this problem is the draft law №4537, which provides for reforming the system of collection and distribution of contributions in favor of right holders, making the system transparent, minimizing corruption, and not putting pressure on legal business. We hope that the voice of transparent business will be heard, and Ukraine will be able to implement tools that help fight the shadow market, and not strengthen it. Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

Sofia Araslanova CEO of the Association of Ukrainian Importers of Consumer Electronics

Commodity smuggling is a top scheme for tax evasion, and the most popular commodity group in the structure of illegal imports is "equipment and electronics" which occupies 21.4% of all goods imported illegally. This situation leads to the situation when a business that legally imports and sells its goods on the Ukrainian market with the payment of all mandatory and additional taxes and fees loses competition to illegally imported goods. In such difficult conditions, fees for private copying and reprography become an additional tax burden for legal business, because illegal goods enter the country without any tax and customs burden. Currently, it is proposed to significantly increase the percentage of deductions which will raise the cost of official equipment and the consumer will pay the extra money, and legal business will become even more uncompetitive. As a result, everyone loses: the consumer, legal business, the state, while the shadow market and corruption will win.

The participants of the press conference called on the authorities to intensify measures to combat the shadow market and to reform the system of royalties, which currently serves as the source of corruption and an additional burden on legal business. Currently, collective management organizations authorized by the state to collect private copying and reprographic reproduction fees require importers to increase the percentage of these fees and form a new list of reprographic equipment which are subject to fee deductions. This will increase the cost of equipment by an average of 4%. Such a decision will make legal goods even more uncompetitive.

Viktoriia Kulykova EBA Consumer Electronics Committee Manager

Hennadii Smorzhevskyi, Head of the Intellectual Property Committee, the Association of Information Technology Enterprises of Ukraine, said that the market already has an unpleasant case with memory cards. Thus, one of the importers, the APITU members, had a market share of more than 70% in this group of goods, and at the beginning, he paid this fee for private copying at the tariff of 0.75%. However, now, after several years of taxation, the company’s share decreased by three times.

Hennadii Smorzhevskyi Head of the Intellectual Property Committee, the Association of Information Technology Enterprises of Ukraine

Even such a relatively small percentage of deductions for private copying for certain categories of goods can be very tangible. Therefore, businesses are very sensitive to the size of these tariffs. Now, they plan to increase tariff rates from 3 to 5 times for some groups of goods. Therefore, we appeal to the authorities and ask to change the paradigm - to increase the income of authors for private copying not by increasing the fee, but by extending the list of its payers as a result of de-shadowing the market. That is, not to solve all the existing problems in the country at the cost of the legal business, but to create conditions to involve more people in paying taxes, so all those interested in economic development and Ukraine, in general, will benefit from it.

But at the same time, it is necessary to create a transparent system of collection and distribution of funds for private copying, when each right holder will have access to information about the collection through an electronic cabinet and clearly understand the principles of its distribution.

Andriy Yerashov, Head of the Analytical Center of the Union of Ukrainian Entrepreneurs, emphasized the need to establish a clear list of equipment from which the fee is paid, based on economic justification, taking into account technological progress because today many types of equipment have a functional limitation on copying.

Andriy Yerashov Head of the Analytical Center of the Union of Ukrainian Entrepreneurs

Manufacturers are already investing in the development and implementation of copy protection systems, such as the Digital rights management system, which prevents unauthorized digital copies of the content and makes it impossible to play and view content on other equipment, such as TV or computer. However, according to the existing legislation, even with this innovation, the company still has to pay a fee for private copying. That is, the legislation does not keep up with technological development.

The European Business Association calls on the authorities not to create “investment-attractive conditions” for illegal business, not to overshadow the entire industry with additional financial pressure, but to promote the creation of a level playing field. In this context, we would like to suggest the following:

create a transparent system of collection and distribution of copyright fees, when each right holder will have access to information about the collection and principles of its distribution through the electronic cabinet;
increase the income of authors for private copying not by increasing the fee, but by expanding the list of payers as a result of de-shadowing the market;
establish a list of equipment from which the fee is paid based on the economic justification of feasibility with the consideration of the latest technological progress.

One of the steps to address this problem is the draft law №4537, which provides for reforming the system of collection and distribution of contributions in favor of right holders, making the system transparent, minimizing corruption, and not putting pressure on legal business. We hope that the voice of transparent business will be heard, and Ukraine will be able to implement tools that help fight the shadow market, and not strengthen it.

Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.