Taxes for IT industry: will Ukraine keep maintaining the lowest tax rates?

The IT market of Ukraine is claimed to grow owing to the increase of the exporting products and services since Ukrainian specialists have shown the constant and excellence job performance. Our market, despite tough political and military situation , is still considered among the best IT outsourcing destinations. The total taxes paid to the state equals to $2.5 billion for the past years, which is amidst the higher in Ukraine.

Ukrainian tax system has been built in a favorable way so that private entrepreneurs and foreign companies could easily enter the local market without difficulties in a partnership or establishing own company here. This matter has been widely discussed since on September 22 a draft to the Law “On Amendments to the Tax Code of Ukraine (concerning the abolition of the electronic administration system of value added tax)” was registered. According to this draft, Ukrainian IT sector should be subject to the increase of taxes. As of today, the IT specialists mainly working as private entrepreneurs pay 5% of their income. If the Law is implemented, then the tax rise will be twice as much. However, this rate will be equal for all businesses (as today the general model is 18% from income).

Since the IT industry has been the second largest in Ukraine, these amendments have been viewed as an attempt to simply obtain more money to the state. The schemes have not been transparent since the Ukrainian entrepreneurs have been fiercely fighting against the steps of taxing more from private businesses and industries in general. Instead of supporting Ukrainian business, the deputies and government are more seemingly trying to pull money from the business and withdraw them into their own pockets. Local entrepreneurs call the VAT electronic administration system a killer of Ukrainian business. The system has been criticized due to the possibility of manual penetration by the employees of State Fiscal Service, which may lead to data invasion. These data may be corrected in an unfavorable way and make a tax payer pay more than one actually should. Moreover, if the single tax payment system is canceled, many specialists can simply outflow from Ukraine, or the business will conduct shadow activity, or reporting way shorter income than it currently is.

The point is that Ukrainian IT companies are single taxpayers as well as its employees. They are subject to pay taxes within the 3rd group, which is viewed as very short and the state is underpaid. The officials, namely Nina Yuzhanina, the Head of the Verkhovna Rada Committee on Taxation and Customs Policy, voiced out that dismissing the third category of taxpayers will equalize the taxpayers’ rights. The tax rise was met with negative comments from IT market specialists and companies mainly support the idea of keeping the aforementioned 3rd category for IT. First of all, for the sake of the national economy, it is necessary to return money from offshore accounts stolen by the former government and its members. Only then the discussion on taxes will matter if all business, small or large will be fair taxpayers.

We suppose that in the nearest future the change of tax system for IT will not change drastically since it has already caused the wave of disagreement and heated discussions. However, the government should consider the interest of the IT companies and possible threats occurring after the adoption of the amendments to the Tax Code.

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