In Ukraine, starting from 2025, it is planned to gradually increase existing taxes, as well as introduce new taxes. In particular, the simplified taxation system, which provides preferential treatment for doing business for some categories of entrepreneurs, is expected to actually be phased out.
Journalists found out what changes to expect in this area, how the planned innovations will affect the work of private enterprises, as well as the production of drones for the Ukrainian army.
Starting next year, Ukraine will begin a reform of the simplified taxation system, which is used by many individual entrepreneurs (individual entrepreneurs, also known as sole proprietors), as well as some legal entities.
The “simplified” reform is provided for in the “National Revenue Strategy” for 2024-2030, which the Ukrainian government developed and approved at the request of the International Monetary Fund (IMF).
An important element of the strategy is to increase existing taxes and introduce new ones. This will, in particular, affect businesses that operate on a simplified taxation system.
Starting in 2025, for legal entities of the third group, the single tax rate will be gradually increased from the current 5% to 18%, and after three years they will have to switch to a general taxation system.
The reform will also affect private entrepreneurs. For them, over the course of the same three years, tax rates will be revised, which, in the end, will be differentiated in the range from 3% to 17%, depending on the type of activity.
Military tax for private entrepreneurs
Among other things, the government plans to extend the payment of military duty to private entrepreneurs, which, moreover, is going to be increased from the current 1.5% to 5%.
Previously, “Apostrophe” has already partially addressed this issue. The main expert conclusion is that the extension of a military tax of 5% to individual entrepreneurs who are “simplified” will significantly undermine their financial situation, which will force many of them to either close or go into the “shadow.” And this, in turn, will lead to a reduction in tax revenues to the budget - that is, to a result exactly opposite to what the authorities expect.
According to the head of the analytical department of the ANTS network, Ilya Neskhodovsky, the introduction of a military tax of 5% for the “simplified” group of the third group will actually double the tax burden for them.
“For those who provide services, this is not critical, and it will not lead to their bankruptcy. But for trade this is much more critical - for some types of goods the margin is exactly that same 5%,” the expert said in a comment to the publication. — And if the second and third groups of the simplified system are combined (and the authorities also have such plans - “Apostrophe”), this will lead to the fact that many small enterprises in the trade sector will be closed. And if we are talking about production, then 5% is actually an increase in their cost of production by that percentage. And, given the increased competition with imported goods, such enterprises will simply go bankrupt. In other words, we simply will not have small production, because imports will completely “eat up” it.
VAT leads to the “shadow”
Other government “innovations” in this area also do not promise anything good for small businesses.
Thus, CASE Ukraine expert Vladimir Dubrovsky considers the government’s intention to introduce a threshold for charging VAT from small businesses at the level of 1 million hryvnia (this is stated in the National Revenue Strategy) a big mistake.
“According to our legislation, payment of VAT requires full accounting. And we are not talking about an income of 1 million, but a turnover of 1 million. And such an entrepreneur simply cannot exist in the general field,” Dubrovsky said in a conversation with Apostrophe. “This can only mean that those who write down such provisions are deliberately going towards the complete destruction of legal small businesses. Making a market trader a VAT payer means driving him into the “shadow.”
No small business
Also, many questions are raised by the planned “reform” of the simplified taxation system, which, in fact, will destroy the “simplified” system.
There is an opinion that the simplified system is used by businesses solely to evade taxes. It is for this purpose that companies register their employees as those very “simplified” private entrepreneurs. It should be recognized that such a practice does exist, but for many entrepreneurs a simplified system is an opportunity to survive.
In addition, it would be a mistake to assume that the simplified taxation system is exclusively Ukrainian “know-how”, invented for tax evasion, and that there is nothing similar in other countries, in particular in European ones.
“Most countries have a simplified (taxation) system for small businesses. Those who don’t have it don’t have small businesses either,” says Vladimir Dubrovsky. “Therefore, the experience of countries that do not have a simplified system is a bad experience, and one should not rely on it.”
There will be more emigrants
And most importantly, the elimination of the simplified taxation system will lead to Ukraine losing its competitive advantage.
“We already have a lot of Ukrainians abroad, mostly Ukrainian women, and now there will be mass migration,” predicts Ilya Neskhodovsky. — At the same time, in Europe there are many tax regimes for small businesses, which are more profitable than what the Ministry of Finance is currently offering in the National Revenue Strategy. People will move to European countries, they will have higher effective demand and all the advantages that exist for small businesses, low lending rates, government support, and so on. That is, in other words, this is a very powerful argument for economic emigration. It will simply be unprofitable to work in Ukraine.”
According to him, the seriousness of this situation can be understood with just one example: now in Ukraine there is a boom in the production of drones for the needs of the army, but the “simplified” reform will help push such production abroad: “It will also most likely move to Europe or Turkey, which already offer more favorable conditions.”
How government officials respond to criticism
The authorities, however, do not consider the negative assessments of the proposed reform of the simplified tax system to be fair and are ready to defend it.
According to the head of the parliamentary committee on finance, tax and customs policy, Daniil Getmantsev, this reform will not lead to the elimination of the “simplified system”.
“But the simplified system will become fair and will be designed for truly small businesses,” the people’s deputy said in a comment.
He also emphasized that any changes in relation to the “simplified system” will be possible only after the end of martial law in Ukraine.
