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If legislation passes Parliament, Ukraine may lose 1% of the country's GDP, experts suggest.
The Verkhovna Rada, Ukraine's parliament, on January 16 plans to consider at the second reading bill No. 1210 to amend the Tax Code of Ukraine on Improvement of Tax Administration, Removal of Technical and Logical Mismatches in the Tax Legislation. Ukrainian businesses have already branded the draft law as "tax terror bill".
Outlining the strategy of the bill's authors, Director for economic programs of the Ukrainian Institute for the Future (UIF) Anatoliy Amelin said: "Do you know how to ruin the economy with just one bill? Collect all wishes of the Finance Ministry and tax officers with a huge number of technical amendments in a single document – with a comparative table of 580 pages – and switch on a 'turbo mode'."
If the bill passes Parliament, Ukraine may lose 1% of the country's GDP and see a reduction in extraction of natural resources due to increased royalties for gas and iron ore production and the introduction of legislation on countering base erosion and profit shifting (BEPS). In addition, IT companies may curtail their operations in Ukraine due to double taxation regulations and an 18% tax on income received from abroad, the expert says.
Amelin also predicts a serious deterioration in Ukraine's business climate (including through unjustified strengthening of control over base erosion), unlawful interventions by tax authorities (including through adjusting financial performance figures), and discrimination against foreign investors (taxation of exchange rate differences).
"Although the bill has changed significantly compared to first reading, it remained very heavy. A significant negative factor is business purpose rule – the right of a tax officer to evaluate a foreign economic transaction as to whether it is economically viable or not. Constant lawsuits in this regard, which we first saw at the time of Mykola Azarov's premiership, will return. Given the plans for the development of European Union markets by Ukrainian exporters, this is a very bad initiative," expert at the Institute of Social and Economic Transformation Viacheslav Cherkashyn said.
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The expert added that considering such a bill, Ukraine assumes unjustifiably inflated international obligations that neither the business nor the state can fulfill.
"Some parts of the tools that the bill contains were being introduced in the European Union with directives for three and a half through seven years. That was a long transition period. We have just one year. Tax officers are hysterical, too – they don't know what to do, and how. But at the same time, fines increase on many positions by four times," Cherkashyn said.
As UNIAN reported earlier, almost all major business associations and those of Ukraine's foreign investors, including the European Business Association, the American Chamber of Commerce, the Ukrainian League of Industrialists and Entrepreneurs, the Federation of Employers of Ukraine, and many others back in November 2019 spoke against the bill.
The Council of Entrepreneurs under the Cabinet of Ministers of Ukraine also categorically opposed the bill, calling it "tax terror."