IT in­dus­try wor­ries about pro­posed tax hikes

Kyiv Post Legal Quarterly - - Contents - By Denys Kras­nikov kras­nikov@kyiv­post.com

Even with Rus­sia's war smol­der­ing in east­ern Ukraine, Ukraine has man­aged to make gains in in­ter­na­tional busi­ness rank­ings.

Ac­cord­ing to the World Bank, Ukraine this year ranked 87th out of 189 economies in ease of do­ing busi­ness. The coun­try climbed 9 places in the rank­ing com­pared to the pre­vi­ous year.

The suc­cess of Ukraine’s grow­ing in­for­ma­tion tech­nol­ogy in­dus­try con­trib­uted to the im­prove­ment. IT firms enjoy a much lower tax bur­den than in most ad­vanced economies. Most who get hired in this field usu­ally find em­ploy­ment as in­de­pen­dent con­trac­tors or en­trepreneurs. This al­lows them to take ad­van­tage of low tax rates and un­com­pli­cated re­port­ing reg­u­la­tions. That ben­e­fits both com­pa­nies and employees.

In this ar­range­ment, called the sim­pli­fied tax sys­tem, em­ploy­ers don’t have to pay taxes on salaries, while employees pay a fixed rate of only 4 per­cent of their earn­ings, un­less they choose to pay value-added tax as well, in which case the rate is 2 per­cent.

How­ever, the most re­cent tax re­form bill on of­fer will end the con­ve­nient tax regime.

“Jaresko promised the rates would stay at the same level, and in­de­pen­dent con­trac­tors re­main – at least for the next two years,” Vasyuk told the Kyiv Post. “But then the rate will grow very rapidly. It is to be 13 per­cent for con­trac­tors by 2018, and 20 per­cent by 2019.”

“That’s what we’re all fight­ing against. The taxes will have to be in­creased more grad­u­ally to save busi­ness­peo­ple in Ukraine,” he said.

Ac­cord­ing to him, only if there is a smooth in­crease in tax rates will it be pos­si­ble to plan a busi­ness to keep it de­vel­op­ing, which in turn will sup­port the tech in­dus­try’s over­all growth. “If abrupt change hap­pens, it will force part of the in­dus­try to move its busi­nesses some­where else,” Vasyuk said. There are signs that some com­pa­nies are al­ready con­tem­plat­ing a move. Ac­cord­ing to the di­rec­tor of NHL Au­dit Yev­geniya Vaku­lenko, IT com­pa­nies started call­ing her and her col­leagues for help in mov­ing work­ing cap­i­tal abroad af­ter learn­ing of the new draft code.

“Clients from the IT sec­tor came to me ask­ing how to take their cap­i­tal out of Ukraine,” Vaku­lenko told the Kyiv Post. “This speaks vol­umes. This tells us that the Fi­nance Min­istry’s draft will not fa­vor the de­vel­op­ment of the IT busi­ness in Ukraine.”

“There is much to gain from pay­ing taxes – but only if they’re un­der­stand­able and don’t kill off a busi­ness,” she said A com­pro­mise bill was pre­sented to the Verkhovna Rada on Dec. 17, but did not re­ceive enough sup­port. The chances for pas­sage by year's end are un­cer­tain.

Peo­ple ex­am­ine a robot at the In­notech Ukraine con­fer­ence at Olympic Sta­dium in Kyiv on April 9. (Anas­ta­sia Vlasova)

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