Coronavirus entrapped business in quarantine

The Verkhovna Rada has recently adopted a number of regulations aimed to relax the “rules of the game” for business during the quarantine period. In particular, it introduced temporary preferential tax treatment schemes: the state exempts private entrepreneurs from Unified Social Tax (UST), real estate tax, and land fee for March–April. The Parliament also cancelled penalties and fines for certain violations of fiscal law, imposed a moratorium on documentary and factual audits until 31 May 2020 (for UST audits – until 18 May 2020), and extended the deadlines for individuals to file their PIT returns.

Moreover, the Parliament postponed the effective date of mandatory application of cash registers by specific groups of taxpayers and application of new sanctions to be imposed for violation of legislation while using cash registers.

Although there exist different views on the appropriateness of the above steps, for they sometimes hamper the fight against the shadow sector, we all understand that the Ukrainian economy needs saving. The actions taken by the government are logical and quite expected and they are fully in line with the OECD's recommendations on the proposed tax measures aimed to support the economy amid the COVID-19 crisis. We should thank our lawmakers for these steps.

However, there is one little “but” are these actions sufficient? Obviously, very unlikely. Therefore, the government should consider implementing additional measures that would help business during this turbulent time.

What are major concerns for business during quarantine?

The first and major challenge that the quarantine places before companies is how to arrange for remote work of their employees. And here comes a plenty of hidden pitfalls: the unpreparedness to implement advanced technologies into their business processes, the disregard of benefits enabled by electronic document management, and the fear of infringement of taxpayers' rights in case they are unable to provide a paper-based documentary support. All these prompt the companies to keep attendant staff with signatory authority present in the office. But is this safe in the current circumstances? The attendant staff members are exposed to danger while in the office. Moreover, they have to handle documents that may carry the virus, which puts their colleagues and clients at risk.

COVID-19 made us all confront the problem of unavailability of electronic document management head-on and once again pointed to the urgency of resolving this issue. Today, it is crucial for the government to promote the use of technologies and to assure businesses that no sanctions will be applied in case of tax violation arising from ambiguous interpretation of transactions supported by electronic documents, provided, however, that there is no tax default. In addition, it would be a good thing to explicitly specify that all state agencies and state-owned institutions must only request and accept digital copies of electronic documents.

What tax reliefs are applied in the world practice?

Many countries, such as France, Germany, and China that do not tend to espouse tax loyalty, have announced “tax holidays” – an exemption from tax payments for the period of quarantine, with tax payments to be further paid by installments. Neighboring Poland has launched a program that allows entrepreneurs to deduct losses incurred in 2020 from their 2019 taxable profit. On the one hand, we understand that Ukraine has no sufficient reserves; on the other hand, we realize that business will hardly be able to survive without such support. In today's circumstances, such funds may only be sought from global financial institutions. This significantly adds to the importance of fruitful cooperation with these organizations.

What should the state focus on?

Needless to say that it is too early to predict the duration of quarantine. However, the sure thing is that it will definitely be over one day. Life will go on, albeit with serious economic consequences and a whole bunch of new (or, rather, old) unresolved issues. Their settlement will require our vigorous and prompt actions. Ukraine will be challenged to boost industries that will become the foundation for development of the state. Such industries may be determined only after we have defined an economic strategy and developed an understanding of where we want to be on the world's map. Now we can be sure of one thing: in order for our country to remain competitive, it is necessary to provide incentives and support to:

• business that implements digital technologies in its day-to-day operations to ensure the development of the digital economy;
• business that creates products with added value;
• foreign investments, particularly in high-tech industries.

Such support may be provided through multiple tools, including tax relief, concessional loans, targeted assistance, and others.

At the same time, to ensure the development of other industries in the country, apart from the commodity market, we need to complete the judicial reform. Unfortunately, it is still in the talking stage. From my experience, I know of several cases where foreign investors, the world's largest companies, bought technology businesses in Ukraine, and then closed them and relocated abroad. And that’s quite distressing. This happens both due to disbelief in proper protection of intellectual property rights and serious doubts about the independence of Ukrainian courts. In this context, the government should take effective practical steps in this direction today.

We all still have to make much effort to bring our country to a higher level, to make companies not merely want to keep their businesses here but to queue up to launch new projects.

I personally think that we should start with implementation of the economic strategy and judicial reform.

It has been recently announced about the creation of an anti-crisis headquarters for combating the coronavirus – an important and top priority issue of today. It would be a good thing for our country to succeed in its efforts to quickly curb the epidemic, to develop the abovementioned economic strategy, and to finally achieve tangible results from the implementation of the judicial reform. I am sure that many rational people want to make their personal contribution to our country to propel it to new heights.

The author would like to thank the entire Deloitte Ukraine's Legal Team, in particular Valentyna Berezkina and Pavlo Zayats, for their invaluable contribution and joint remote work on the article amid quarantine.