Salvation of the economy or a step towards hyperinflation? What will the new taxes lead to during the war

The Ukrainian economy is being transferred to a military footing. To this end, the government, together with the deputies, decided to change the rules for paying taxes for the period until the end of the war – a corresponding bill was submitted to the Rada. The main feature is the reduction of taxes on fuel and the fact that large businesses will be able to switch to a simplified taxation scheme.

“Today” together with the experts analyzed the pros and cons of these innovations.

What do they offer

Bill 7173-d, which was approved by the tax committee on Monday, was approved by deputies as a whole on Tuesday. The document introduces about four dozen changes to the legislation that radically change the rules for doing business in wartime. The main goal is to stimulate business to work in wartime, to transfer production to territories where there is no war, and also to create jobs.

The first change will affect the fuel market. In order to prevent prices from rising to UAH 50 per liter, the government reduces VAT and cancels excise duty on gasoline and diesel. This should stabilize prices in the market.

“Based on the average gasoline price quotations since the beginning of March, under the new rules, the marginal cost of gasoline will be about UAH 38/l, diesel fuel – about UAH 35. If the old taxation scheme had remained, you would have to pay UAH 8 more for gasoline and UAH 5 more for diesel,” explains Sergey Kuyun, energy market expert.

The second important initiative is the expansion of the simplified taxation model to large businesses. The bill increases the income limit for using the single tax from UAH 10 million to UAH 10 billion. The turnover tax is set at 2%. Also, President Volodymyr Zelensky said that business inspections would be stopped.

There are also a number of changes for citizens. For the period of martial law plus 30 days after its end, a moratorium is introduced on the collection of property and the eviction of tenants who took housing on a mortgage before the war. In addition, banks will be banned from charging fines for overdue consumer loans.

For the period of martial law, the salary of officials is limited to 10 “minimal wages”, or 65 thousand hryvnias.

Business will be crushed

Experts see a number of risks in the new rules and say that there are pitfalls in the text of the bill itself, which officials and politicians are silent about.

“Let’s start with the fact that the president is talking about the abolition of all inspections, while the bill, on the contrary, refers to the launch of tax audits for unused cash registers. Small businesses will begin to receive fines due to the fact that no one has canceled the cash register requirements,” he says. economist Daniil Monin.

The second important point is that, most likely, large businesses will begin to split into smaller companies in order to fall under the simplified taxation scheme.

“Large retail chains will not be able to meet the turnover requirements. Therefore, if a manufacturer selling its goods to a chain like ATB or Silpo pays its 2% of turnover, then the chain will then have to pay 20% of turnover in the form of VAT, because that there will simply be no tax credit in the chain. In this regard, most likely, large chains will begin to split into several legal entities in order to meet the requirements. And in each city we will have our own legal entity of one or another retail chain, “continues Daniil Monin.

A step towards devaluation and hyperinflation?

There is a tax reform and a significant disadvantage. The more benefits a business receives, the less taxes will go to the budget. But you still have to pay salaries and pensions, finance subsidies and benefits, and spend money on the war.

“In times of war, it is impossible to support the economy solely through tax cuts. For the budget is now having a hard time. We must put pressure on partners to give us as much money as possible. But until they are given it, this may lead to the National Bank issuing will plug the budget hole, which will lead to hyperinflation,” says Gleb Vyshlinsky, executive director of the Center for Economic Strategies.

The expert welcomes the suspension of any reporting, adjustments, especially the labor market, and a decrease in the number of inspections.

“I welcome the assistance of the state and international partners for the relocation and restoration of production. But massive tax breaks can be a dangerous tool that will undermine economic stability,” summarizes Gleb Vyshlinsky.

Earlier we wrote that Ukrainians are buying real estate according to “grey schemes”. Read about how to properly manage money during the war.