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Countries around the world are responding to the coronavirus crisis by introducing tax incentives. What about Ukraine?
On 11 March 2020, the World Health Organization (WHO) declared the outbreak of disease caused by SARS-CoV-2 virus a pandemic.
Unfortunately, coronavirus has been spreading rapidly around the world, with the number of confirmed cases exceeding 1.5 million already. To prevent the collapse of healthcare system, most governments of the pandemic-affected states have implemented stringent quarantine measures, which, in turn, has resulted in a near-complete shutdown of entire sectors of the economy.
To avoid catastrophic consequences for employment and economic stability, measures are being put in place to support businesses and individuals.
Most often, such measures take the form of various tax incentives, namely, non-application of penalties for a certain period of time, no need to justify delays in payments and filing of tax returns, etc.
In addition, such incentives include a suspension of tax audits, VAT exemption of certain transactions from VAT, introduction of sick leave benefits and payments to employees and employers, tax exemption of companies operating in certain industries.
One of the popular measures is the deferral of VAT and personal income tax payments or payment of accrued tax liabilities in installments. Moreover, such payments are postponed not only for a month or two, but more often for six months or even until the end of 2020.
In particular, the same or similar measures have been implemented in Great Britain, Slovenia, the Netherlands, Indonesia, Belgium, Cyprus and other countries.
So what about Ukraine? A number of similar laws have already been adopted in Ukraine, with the latest law being passed on 30 March.
Ukraine has implemented the following measures and incentives:
- Tax exemption of funds used to fight against COVID-19 pandemic
- Suspension of audits and administrative appeal procedures
- Postponement of filing of tax returns and payment of taxes with no penalties imposed
- Removal of restrictions on the inclusion of charitable contributions in deductible expenses
- Exemption of private entrepreneurs from single social tax
However, such steps may not be sufficient or even enough to improve the liquidity of entities amid a severe crisis the emergence of which we can already observe in the domestic economy.
Given the other countries’ experience and methods of fighting against crisis caused by COVID-19, Ukraine can do more to simplify the lives of taxpayers who are in a very difficult situation due to both the quarantine restrictions and global financial crisis that is picking up steam.
Above all, the Ukrainian Parliament and government should pay attention to the following measures:
- Any tax benefits and deferral of tax payments should be envisaged by law clearly and transparently. Currently, the law only provides for the cancelation of penalties for non-payment of taxes during the quarantine period, but it does not expressly state about the deferral of such payments.
This creates even more uncertainty for businesses and can potentially result in additional fiscal pressure by tax authorities.
- Introduction of a double deduction of expenses from income of entities in the amount of 200% if such expenses are used to fight against COVID-19.
Purchasing of equipment for hospitals (in particular, artificial respiration units), personal protection kits for medical personnel, medicines, etc. could also help our healthcare system to cope with the challenges in these trying times. This will encourage charity donations to overcome the effects of the pandemic.
- Ensuring uninterrupted electronic document flow.
This step is especially important in the absence of permanent access to office premises and possibility of signing paper documents. There is a legal framework for the acceptance of such documents by tax authorities. However, in practice, the regulatory authorities do not always take them seriously, even when all legislative requirements for the confirmation of such electronic documents are fully met.
By providing appropriate guidelines and clarifications, the government should not allow the tax authorities to challenge the taxpayers’ source documents prepared in electronic form at a time when the need to transfer paper documents physically from one place to another may pose an additional risk factor.
- Implementation of a procedure for paying single social tax in installments (22% of the total salary fund) for the period of several months, and not just the current relief from late payment penalty until the end of May.
This measure could also provide an additional motivation for the Ukrainian businesses to leave employees’ wages at the pre-crisis level, which would generally support the purchasing power of the population and encourage a more rapid crisis recovery after the lifting of quarantine measures.
Many countries also introduce similar installment options for VAT payments. However, it should be noted that this would be the most budget-unfriendly initiative for the state budget of Ukraine, as it is mainly replenished by VAT revenue. In 2020, budget receipts from VAT are expected to reach UAH 446.3 billion, which is 52% of all tax revenues.
Would our state budget be able to withstand such a ‘generosity’? It is a difficult question that requires special consideration.
- Introduction of tax installment payment options to support certain industries and businesses most affected by the quarantine restrictions, in particular, travel, hospitality, airline, and food service companies.
Ukraine is moving in the right direction, demonstrating its ability to promptly address the emerging challenges and adapt to new realities.
However, the measures taken are not enough to support the national economy and enable its complete restart after the quarantine ends. Now, more than ever, we need to study and analyze the experience of other countries and make better decisions to stabilize our own economy.
The author would like to thank the Deloitte Ukraine’s tax and legal specialists, in particular Yuliia Khablo and Olha Domarenko, for joint work on the article.