On October 6, the Verkhovna Rada Committee on Finance, Tax and Customs Policy began consideration of draft law No. 5376 in the second reading, which is a tax component of the Diia City special regime. During the Committee meeting, Andrii Kholodov, a People’s Deputy from the Sluha Narodu party, proposed an amendment under which the transition period for Diia City residents from private entrepreneur model to gig contracts should last not 3 years, as requested by the IT industry, but only 1 year.
During the voting, it turned out that there was no quorum for the adoption of such an amendment, so the meeting was adjourned. Further consideration of draft law No. 5376 is scheduled for early next week. However, in addition to this amendment, the text of the draft law contains a number of steps critical for the IT industry.
WHAT’S WRONG WITH THE TAX DRAFT LAW FOR DIIA CITY
On October 5, IT Ukraine sent an official letter to Danylo Hetmantsev, the Chairman of the Committee, in which the Association insists that the Committee should reject, in particular, such categorically unacceptable for IT business amendments introduced by the People’s Deputies:
- On the limitation of the possibility to involve private entrepreneurs who are single tax payers to perform works or provide services by Diia City resident companies;
- On the extension of tax benefits only to specialists whose positions are referred to as “programming professionals” in the classification of professions.
WHAT IT ACTUALLY MEANS
In fact, this means that if People’s Deputies vote for the above-mentioned amendments, the industry’s screws will be tightened more. It is a question of non-alternative transfer of all private entrepreneurs to labor relations or to gig contracts, and also the absence of tax benefits for those experts of Diia City residents who do not do programming directly. At the same time, the transition period to change the model of work of all resident companies of the regime will last only a year.
Now there is sabotage against the country’s advanced export industry. Two years of intensive work between the industry, the Ministry of Digital Transformation, the Ministry of Finance, the Office of the President of Ukraine, and the People’s Deputies to create an advanced IT hub in Eastern Europe proved to be unprofitable for certain individuals. And then at the last moment before the second reading, murderous amendments were made to issues long-discussed in public. The IT industry is in a situation where there is only a week left to consolidate the efforts of all stakeholders to protect the system’s efforts to reform the industry in the next 25 years,said Dmytro Ovcharenko, the VP on Financial and Legal Issues of IT Ukraine Association.
IT UKRAINE ASSOCIATION POSITION
Given the growing efforts of neighboring countries to stimulate the development of their own IT industries and emphasizing the need to build clear and transparent rules of the game that will allow the business to be competitive in the global IT services market, the Association emphasizes the importance of taking into account such critical requirements of the IT industry regarding the Diia City project:
- Preservation of the tax burden for IT specialists declared by the authorities: personal income tax — 5%, single social security tax — 22% of a minimum wage, military duty — 1.5%. At the same time, it is extremely important to keep the promise of the possibility of extending this tax burden to all, without exception, employees and gig specialists of Diia City residents, without any restrictions on the activities they carry out and their income level.
- Ensuring the possibility for Diia City residents to attract private entrepreneurs who are single tax payers to perform works or provide services without any restrictions and additional tax burden, if such Diia City resident company is a payer of income tax on a general basis.
Only if the authorities meet these critical requirements, the Association will be ready to support draft law No. 5376. Failure to comply with these requirements not only jeopardizes the proper implementation of the Diia City project but more importantly, it will result in a significant weakening of the domestic IT industry and the inevitable outflow of specialists and financial capital from Ukraine.