Since the outbreak of war on the territory of Ukraine, its economy has been seriously shaken. In March 2022, the Ministry of Finance of Ukraine was collecting funds ‘manually’.
The figures for April will be available soon enough, and the forecasts are not good. In these conditions, the pre-war tax regime simply could not exist. Therefore, during the war, tax changes are receiving increased attention.
As a reminder, on 15 March 2022, the Parliament adopted Law 2120-IX, which established the specifics of the Tax Code of Ukraine during martial law.
The changes concerned the payment of taxes during the war, tax administration, etc. Then, on 24.03.2022, Law No. 2142-IX was adopted, which continued to improve the effect of the provisions of the Tax Code of Ukraine during the war. I have already talked about it in the previous article.
Among other things, it cancelled customs duties on European cars and abolished the environmental tax. The logical continuation was Law No. 2173-IX of 01.04.2022, which improves the simplified taxation system during the war and eliminates the shortcomings of the previous two laws.
In my opinion, all of them in one way or another attempted to improve tax administration for businesses, provide tax breaks and benefits to help the economy recover.
At the same time, on 24 April 2022, Draft Law No. 7311 was registered. Later, after consideration by the relevant committee, a revised draft law No. 7311-d was registered, which is almost identical to the first draft except for a few important provisions.
What both draft laws have in common is the cancellation of some of the provisions that have just come into full force. Let's take a look at them.
Is free customs clearance over?
Amendments to the Tax and Customs Codes cancel the provisions on exemption of cars, trucks and passenger cars from VAT, excise tax and import duty. The exemption has been in place for about a month. During this time, supporters and opponents of this idea have emerged.
On the one hand, massive imports of cars have begun, with queues at border crossings. Among them were the owners of luxury cars (the figure given by the authors of the bill is 3,000).
In this regard, the government allowed importing cars for personal use only at six border crossing points. This was a necessary step to enable customs to perform its other duties.
On the other hand, during this period, there is no statistics on the number of cars imported and cleared by volunteers, citizens who bought cars for their own needs, inexpensively, because their cars were destroyed as a result of shelling or occupation of the territory.
By simply cancelling this rule, the government immediately slows down the car market, which has begun to revive. Not everyone can now afford to buy an expensive car. After all, no one knows when the war will end, and it would be better to save the money.
The budget losses mentioned by the authors are theoretical, because it is not a fact that if this rule were not in force, everyone would import cars and pay more than 30% of additional taxes. In addition, this will also stop the recovery of related markets, such as service stations, which will simply have nothing to repair.
As for the queues at customs, the rule on prompt customs clearance within one hour is also cancelled. Doesn't this mean that we need to ask how customs are coping with their duties?
Perhaps we need to understand what problems they face that prevent them from clearing goods promptly. Let me remind you that this was one of the promises made by the President of Ukraine.
One of the compromises was to allow the import of four-wheel drive pickup trucks manufactured before 2017 (one of the novelties of draft law No. 7311-d). In my opinion, this is one of the right directions. Allow customs clearance depending on the year of manufacture of the car, the class of the car - in the future, the cost of the car.
Return of inspections for business
On-site inspections of taxpayers operating in the territories where there are no hostilities or which are not temporarily occupied are being restored. The list of territories is determined by the Cabinet of Ministers of Ukraine.
This has already been hinted at by Danylo Hetmantsev, Chairman of the Tax Committee, in his interview. This is exactly what happened. However, the fact that it happened quite quickly is worrying. The war is not over yet. Martial law has been extended until 25 May, and it will probably continue.
Business has only shown a tendency to recover, and that is not across the entire country. Logistics is disrupted, and communications between companies within the country are disrupted. The supply of goods and services is delayed.
Of course, inspections are necessary to detect violations, but at the same time, they can also facilitate corruption at the local level in order to ‘negotiate’ to restore business operations. We propose not to rush into tax audits and allow businesses to operate fully.
Strengthening control over the circulation of alcohol
Among the main things, excise warehouses should be equipped with mass flow meters for ethyl alcohol, a certificate of the intended use of ethyl alcohol should be submitted, and round-the-clock video surveillance systems should be installed to monitor the production and sale of ethyl alcohol and bioethanol at excise warehouses.
In general, the production of ethyl alcohol and bioethanol is monitored. Increased control over alcohol in times of war has its positive aspects, provided that the control is carried out efficiently and without pressure on producers.
At the same time, at the first stage, alcohol producers will have to pay considerable money to comply with the law. In a time of war, such changes should be discussed with the business community, which will use them in the future.
It is likely that some producers cannot even start production now, and they need to spend money on the necessary equipment. For example, the plant in Nemyriv has already been shut down.
The pre-war taxation of petrol has not been restored
Draft law No. 7311 cancels the 7% VAT rate (before the war, it was 20% VAT) and the zero excise tax rate on the supply of motor gasoline, heavy distillates and liquefied gas.
One of the reasons for the introduction of this rate was and is the fuel shortage and inflation, which immediately led to higher prices for all types of fuel. Even now, gas costs almost as much as A-92 petrol, and diesel has long been 10% or more more than petrol.
The abolition of VAT and excise taxes will immediately lead to an increase in fuel prices. This will automatically lead to an increase in all prices and inflation. In a time of war, such changes will hurt the economic recovery and will affect the pockets of Ukrainian citizens.
Draft Law No. 7311-d cancelled these changes, and if the revised draft law is passed, the 7% VAT rate will continue to apply. This will help reduce fuel prices, which are currently on a steady upward trend.
Doubling the military tax
The rate of the military tax is being increased from 1.5% to 3%. This creates an additional burden on the wage bill. At a time of war, when some businesses are shut down, damaged, or just starting to resume operations, the tax increase will slow down their recovery and growth.
In addition, it will have a negative impact on the salaries of employees, who may simply lose their livelihoods. And in the future, the government will allocate billions of hryvnias for new e-support.
In my opinion, there is no need to raise the military tax rate now, but to try to find other sources to cover budget expenditures. If the recovery trend continues, it will be possible to raise taxes, for example, from July this year.
VAT refunds from government bonds
It is proposed to refund VAT for January 2022 through the mechanism of domestic government bonds issued for 3 (5) years.
Draft Law No. 7311 provides for a five-year period. Draft Law No. 7311-d provides for a three-year period with the possibility of early repayment. The latter option is more favourable for business, as there is at least a remote possibility that the state will repay the funds earlier.
In times of war, the state cannot ensure reimbursement of the claimed amounts. On the other hand, taxpayers need money here and now to restore their business.
The solution of the revised draft law is more like a compromise, and this idea should be accepted by business in times of war.
Instead of a conclusion
Overall, we note a positive trend towards liberalisation of taxation in times of war. In the long run, this will allow businesses to recover as quickly as possible. At the same time, new changes aimed at cancelling certain provisions do not contribute to the stability and predictability of tax legislation.
Changing the taxation system requires considerable human and financial resources. If this system is changed immediately after it comes into force, a logical question arises - why then move on and try to adapt to new conditions that will be cancelled later.
We hope that the state policy in the field of taxation will be more predictable and businesses will have the opportunity to adapt to it properly.
Source: Ekonomichna Pravda