The American Chamber of Commerce criticized the government’s tax changes

The American Chamber of Commerce in Ukraine has criticized the government’s tax changes. According to the organization’s press release, the new draft law №11416 on changes to tax legislation will significantly discriminate against honest transparent taxpayers, tolerating tax “evaders” and increasing the shadow economy.

The organization calls on the Verkhovna Rada and the government to ensure equal conditions for doing business in the country.

As noted, any proposed changes should reflect a balanced tax policy, the desire to ensure compliance with relevant legislation and tax justice. However, those that have been made public do not comply with these principles, and instead will lead to further discrimination of transparent businesses.

The Chamber called on the Government and law enforcement to step up efforts to combat the shadow economy to ensure budget revenues and fair competition. According to its estimates, losses from illegal markets of excisable goods exceeded $1 billion in the last year alone. The organization cites other examples.

The biggest concern in the tax proposals of the Cabinet of Ministers, the report says, is the 1% income tax that will be applied to corporate income. The organization calls this a dangerous precedent and believes that such a tax should not be introduced.

“As far as we know, no other country in the world has a sales tax and a VAT at the same time, as is proposed in Ukraine,” the American Chamber of Commerce said.

The organization has no doubt that the proposed changes will significantly increase the overall tax burden on honest taxpayers, encourage shadow economy participants to redouble their efforts to evade taxes, and create significant difficulties for doing business in Ukraine. In addition, it is a factor of demotivation for existing businesses and new investors to invest, and creates risks of reducing foreign direct investment.

At the same time, the organization understands the urgent need to broaden the tax base by extending the military tax to all categories of private entrepreneurs as well as legal entities to ensure a common contribution to the financing of the fight.

“However, a sharp one-time increase in the military fee to 5% may lead to a decrease in real wages and increase the attractiveness of informal employment, so we call for a more gradual approach to increasing this percentage,” the statement said.

The American Chamber of Commerce welcomed the government’s determination to level the playing field by preventing unfair competition from businesses that evade taxes or enjoy preferential treatment. Therefore, initiatives such as abolishing the €150 limit on cross-border e-commerce, which makes all such parcels subject to VAT, are a step in the right direction as they are in line with European and international practice and will significantly increase tax revenues.

The Chamber is convinced that the source of additional tax revenues is the fight against tax evasion and ensuring equal rules for all, not increasing taxes for honest taxpayers who already bear the greatest burden.

“We call on the Parliament and the Government, with the support of the IMF, the European Union and the G7 member states, to ensure that the tax burden is distributed among all market participants,” the statement reads.

As a reminder, Ukrainian think tanks have analyzed the government’s draft law No. 11416 and note that it contains a number of extremely negative provisions that will cause significant damage to the domestic economy.