Business suggests strengthening de-shadowing measures instead of raising taxes

The government should pay attention to the fiscal potential of the shadow economy

The member companies of the European Business Association (EBA) are in favor of strengthening measures to de-shadow the economy to fill the state budget instead of raising some tax rates and introducing new ones as proposed in draft law No. 11416. This is stated in the message of the association.

This issue was discussed at a meeting of EBA member companies with Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, and Svitlana Vorobey, Deputy Minister of Finance.

According to the EBA, business is aware of the need to accumulate additional resources for defense needs during martial law.

“However, at present, the entire burden of the proposed tax increase falls on honest businesses, which can have a devastating impact – up to and including investors’ decisions to stop operating in Ukraine due to unpredictable and uncompetitive conditions compared to the shadow sector,” the business association said.

According to EBA members, until the government uses the potential of the shadow economy, it is difficult to understand additional taxes exclusively on white businesses. De-shadowing can free up additional billions of hryvnias to the state budget. At the same time, the association emphasizes that without customs reform, a full-fledged restart of the BES, and effective law enforcement, an effective fight against the shadow economy is impossible.

The EBA experts also provided a number of other proposals for filling the state budget.

In addition, the EBA proposes to assess the effect of raising the VAT rate, going beyond the fiscal effect, and to study the impact on Ukraine’s economy in the medium and long term.

In addition, according to the business, it is necessary to optimize state budget expenditures and review some government spending.

“We call for an increase in the efficiency of public spending, which provides for the financing of socially important programs that contribute to economic recovery and strengthening of defense capabilities,” the EBA said.

The EBA specifically noted and agreed that these measures should be temporary. At the same time, the discussion participants disagreed on the timing of the introduction. The business community proposed to introduce these measures for a fixed period of one year, while representatives of government agencies are inclined to introduce these measures until the end of martial law plus a certain fixed period.

In addition, the EBA companies voiced their comments and suggestions on specific tax rates and explained how their companies and industries could be affected by their increase.

In particular, the EBA opposes the turnover tax.

“For some companies with low profitability, such a tax burden will be unbearable. The turnover tax will affect the competitiveness of Ukrainian companies both in international markets and in Ukraine, as 1% of turnover will be applied at each stage of production. Business is categorically opposed to the turnover tax combined with income tax and VAT for legal entities without any simplifications compared to the simplified system,” the EBA said in a statement.

The association noted that both the relevant parliamentary committee and the Ministry of Finance listened to the arguments of the business and are inclined to understand the negative consequences and the need to exclude this initiative from the text of the draft law.

The EBA has officially submitted its proposals and warnings to the authorities, and will provide all additional calculations in the normal course of business.

As GMK Center reported earlier, in late July, Ukrainian think tanks analyzed the government’s tax proposals (government draft law No. 11416). They note that it contains a number of extremely negative provisions that will cause significant damage to the domestic economy.