Transparent Business Believes Combating the Shadow Economy is a Better Alternative for Budget Revenue than Raising Taxes

04/ 09/ 2024

Yesterday, the Verkhovna Rada of Ukraine did not support Bill No. 11416-d, which proposed increasing taxes. While understanding that the additional budget needs currently amount to 500 billion UAH due to rising defense expenditures, the business community still considers the decision not to consider this bill as prudent and rational. The proposed tax hike would place the entire burden on honest businesses, which could have a devastating impact on both businesses and the countrys economy. Transparent businesses would find themselves at an even greater disadvantage compared to those operating in the shadow economy. Unfortunately, this would make conditions for entrepreneurs even more unpredictable and could negatively influence investors decisions to continue operations or invest in Ukraine. Of course, businesses recognize the critical need to accumulate resources during wartime. However, to continue building a more progressive country, it is crucial, especially now, to focus on issues that create unfair and unequal playing fields. This includes the shadow economy, where billions of UAH in untapped revenue for the budget are hidden, according to expert estimates. Here, solutions are needed, including customs reforms, effective work by law enforcement agencies (which should act as fair and transparent control mechanisms rather than tools of pressure on honest businesses), and the proper functioning of the Bureau of Economic Security, among others. Additionally, solutions are needed to address the problem of shadow employment, including issues like envelope salaries. It is also necessary to review the proposed taxation mechanism for the automotive market, particularly assessing the fiscal effect of taxing transactions in the used car segment, and to strengthen the fight against gray schemes in e-commerce, among other issues. At the same time, it would be extremely helpful for businesses to see calculations and the economic impact of tax increases—not just the expected tax revenues, but also an assessment of the overall impact on the country, its economy, potential investments, and the future operations of businesses. The community believes that a decision to raise taxes could lead not to increased revenues but to the closure of businesses, which would have the opposite effect on the state budget. The community has already sent a letter to the Speaker of the Verkhovna Rada, the Prime Minister of Ukraine, the Minister of Finance of Ukraine, and the Chair of the relevant Committee on Finance, Taxation, and Customs Policy, asking them to reject this bill, carefully reanalyze possible sources of budget revenue, and consider the business communitys suggestions on areas that should be focused on. If necessary, business representatives are ready to be involved in developing alternative measures. Therefore, we hope that the voice of business will be heard, Bill No. 11416-d will not be brought up for a vote again, and that together, the government and business can formulate measures that will contribute to filling the budget without destroying the work of transparent businesses!

Yesterday, the Verkhovna Rada of Ukraine did not support Bill No. 11416-d, which proposed increasing taxes.

While understanding that the additional budget needs currently amount to 500 billion UAH due to rising defense expenditures, the business community still considers the decision not to consider this bill as prudent and rational. The proposed tax hike would place the entire burden on honest businesses, which could have a devastating impact on both businesses and the country’s economy. Transparent businesses would find themselves at an even greater disadvantage compared to those operating in the shadow economy. Unfortunately, this would make conditions for entrepreneurs even more unpredictable and could negatively influence investors’ decisions to continue operations or invest in Ukraine.

Of course, businesses recognize the critical need to accumulate resources during wartime. However, to continue building a more progressive country, it is crucial, especially now, to focus on issues that create unfair and unequal playing fields. This includes the shadow economy, where billions of UAH in untapped revenue for the budget are hidden, according to expert estimates. Here, solutions are needed, including customs reforms, effective work by law enforcement agencies (which should act as fair and transparent control mechanisms rather than tools of pressure on honest businesses), and the proper functioning of the Bureau of Economic Security, among others.

Additionally, solutions are needed to address the problem of shadow employment, including issues like “envelope” salaries. It is also necessary to review the proposed taxation mechanism for the automotive market, particularly assessing the fiscal effect of taxing transactions in the used car segment, and to strengthen the fight against gray schemes in e-commerce, among other issues.

At the same time, it would be extremely helpful for businesses to see calculations and the economic impact of tax increases—not just the expected tax revenues, but also an assessment of the overall impact on the country, its economy, potential investments, and the future operations of businesses. The community believes that a decision to raise taxes could lead not to increased revenues but to the closure of businesses, which would have the opposite effect on the state budget.

The community has already sent a letter to the Speaker of the Verkhovna Rada, the Prime Minister of Ukraine, the Minister of Finance of Ukraine, and the Chair of the relevant Committee on Finance, Taxation, and Customs Policy, asking them to reject this bill, carefully reanalyze possible sources of budget revenue, and consider the business community’s suggestions on areas that should be focused on. If necessary, business representatives are ready to be involved in developing alternative measures. Therefore, we hope that the voice of business will be heard, Bill No. 11416-d will not be brought up for a vote again, and that together, the government and business can formulate measures that will contribute to filling the budget without destroying the work of transparent businesses!