The Association’s position on bill #8089

The Association’s position on bill #8089

Last week, the business community in Ukraine was shaken with the news regarding the registration of a bill #8089, which was provided for information to the Verkhovna Rada on March, 3. The key novelty of the bill was the complete refusal of the third group of a simplified system of taxation of incomes of individual entrepreneurs. 

In addition to those listed in the text of the bill "active users" of the third group, the simplified system of taxation for this group is also used by representatives of creative industries – one of the main drivers of the growth of economies in modern developed countries. Creative industries are industries that do not require the availability of raw materials for the production of goods or services but are based on knowledge, talents, creativity and the ability to work with information. 

For creative industries, a high added value of a product, a dynamic working environment, creation and development of innovations are characteristic, and the contract form of work, which has already become customary, is an inherent standard for this segment. Creative industries include such areas as advertising, architecture, design and fashion, visual and audio content production, and information technology (IT). It is precisely the latest industry that is currently developing in Ukraine most dynamically, and it is for her that the consequences that may come after implementation of the bill will be extremely negative: 

  1. Significant decline in the rate of growth of the industry and the reduction of foreign exchange earnings.

Without any boost from the state, accounting for more than 3% of GDP and about 7% of Ukraine's total exports, IT-sphere is ranked third in terms of currency earnings, behind this indicator only from agrarian industry and metallurgy. That is, the export of IT-services is one of the main sources of foreign currency inflow to the country. It will be important to note the fact that the sphere of IT in Ukraine shows steady growth - 20% last year ($3.6 billion), and this year, participants predict the growth of incomes in the industry by at least 20% ($4.5 billion). By preserving the current tax environment, the industry can double the volume of export earnings in the future over the next few years.

Because of the negative factors, the main of which is the change in fiscal policy, the industry faces a significant slowdown in growth, and the state - the lack of billions of dollars in the economy of the country.

  1. Reducing the number of jobs in the industry and the outflow of specialists from the country. 

As well as the other sectors of the creative economy, the talent and highly educated specialists are the basis for the Ukrainian IT-industry (ny the moment more than 120 thousand programmers are involved in the industry), whose labor costs are the main item of IT-business expenses and, according to expert estimates, make up from 60 to 80% of company revenue. The ability to work with specialists on the basis of the model of the third group of private entrepreneurship allows the industry to create new jobs (this year it is planned to increase them by 20-25%), provides sustainable development of the industry.

In addition, today's available fiscal policy is one of the main advantages of work in Ukraine for IT-professionals. Equal to the current fiscal policy of neighboring states with a more mature economy, we risk losing the last benefits that hold back the outflow of high-quality specialists to more developed countries.

As we can see on this diagrams in the text, the implications of fiscal policy changes in relation to the IT-industry will become tangible over the next few years. By depriving IT-professionals of the possibility to work on the model of the third group, the state could potentially lose the source of a substantial inflow of currency and tens of thousands of high-paying jobs.

Changing current conditions and increasing the tax burden will significantly affect the development of creative industries that have just began to emerge in Ukraine, and thus deprive the country of one of the main drivers of growth, which in the long run will affect the overall economic situation within the country and its competitiveness on the world market.