In the history of tax innovations of our time, bill No. 2634, registered at the very end of last year, will also take its rightful place. It provides for the value added tax of electronic services that non-resident companies (that is, located outside – such as Facebook, Google and the like) in Ukraine.
According to the initiator of the project was Danylo Hetmantsev the representative of the “Servant of the People” faction, also the chairman of the Committee on Finance, Tax and Customs Policy – it can be assumed that the probability of turning this adoption into an existing law is very high.
We tried to figure out what the adoption of this law would bring joyful and not so bring to us – citizens, businessmen and the economy of Ukraine.
What and how impose
Almost all services that we can get on the Internet fall under taxation (recall, the VAT rate in Ukraine is 20%) :
- Supply of images or texts, photographs, e-books and magazines
- Supply of audio, video, games, gambling, and services for participation in such games
- Providing access to informational, commercial, educational and entertaining electronic resources;
- Access to Cloud computing
- Supply (based on license) of software and updates to it, as well as remote maintenance of software and electronic equipment;
- The provision of advertising services on the Internet, mobile applications and other electronic resources.
But there is exceptions:
- provision of services, if upon order through the network “Internet” the provision of services is carried out without the use of the “Internet”;
- deliveries (rights to use) of programs for electronic computers (computer games), databases on tangible media;
- provision of consulting services by email;
- provision of services to provide access to the Internet.
In order for an international corporation to pay this tax, it will have to register as a non-resident VAT payer. If she does not, she faces a monstrous fine in the amount of 8.5 thousand hryvna. Apparently, such a sum is able to make Mark Zuckerberg and the others like him turn gray with horror.
However, probably you can count on the obedience of international corporations, their unwillingness to spoil their reputation(Now it’s not fashionable to be known as tax evaders) and ask for unpleasant measures, such as disabling access to their resources.
Going with global trends?
As follows from the explanatory note to the bill, it will not only allow you to generously replenish the state budget and eliminate the existing injustice, (why our companies pay VAT, but these are evading)?
However, follows the global trend. Namely: “The establishment of special rules for the taxation of VAT on electronic services is becoming common practice in foreign countries, for example, in the countries of the European Union, Australia, Belarus, Kazakhstan, Russia, etc.” And here it is worth a closer look.
On the one hand, the problem really exists. According to Tatyana Koshchuk, leading researcher at the Academy of Financial Management, GUNU: “Today you can make purchases via the Internet from geographically remote foreign sellers, which poses a threat to indirect taxes and makes it difficult to accumulate them (non-residents fall outside the framework of the tax on consumption taxes). The development of e-commerce, which provides for remote sales and is popular with consumers, is characterized by a low barrier to entry and operational efficiency, which creates serious tax problems. The latter pose a threat to many countries, including for Ukraine”.
Each of us has a certain limited financial resource. We can spend some of it on the purchase of goods / services in a local company (which, theoretically, will pay taxes from them), or on the purchase of services from a non-resident who does not pay taxes to our budget. And if everyone unknowingly hungry and not dressed will run for all their money to download music or advertise on social networks, the budget crisis is not far …
On the other hand, solving this problem requires a careful and thoughtful approach. And the countries of the European Union referred to in the explanatory note of the bill have by no means rushed to tax services from international digital giants. Yes, such ideas are considered, discussed, but there is no real practice of such taxation.
France was The first , where in the summer of last year, President Macron signed a law introducing a 3% tax (just! Not at all 20%) on the income of digital giants. Looking at the example of France, Italy also gained courage in October, adopting a draft budget for 2020, which envisages the introduction of a similar 3 percent tax. And in November, the Czech Republic also tightened up, adopting a plan for the introduction of such a tax of 7%.
But then something happened -US administration opposed it, seeing in the new tax an infringement on the interests of American business. In retaliation, the Americans proposed that France impose large duties on its goods. And in late January, the French government decided to postpone the introduction of the tax. As Macron tweeted, “We will work together on a good deal to avoid raising fees.”
And it is unlikely that in the Czech Republic with Italy it will turn out better than France.
“So far, this is a clean sheet in terms of real taxation experience. Yes, all countries want their taxes to be paid. But the point here is that we do not come up with some Ukrainian know-how that will further turn investors away from us. I’m not even talking about our American partners – it is important not to give a negative signal to all investors. Ukraine is not France, our market is far from being so attractive that large foreign business would like to stay with us at all costs. Given that the importance of the digital economy is growing, these things need to be approached carefully, ”head of the Secretariat of the Council of Entrepreneurs under the Cabinet of Ministers of Ukraine Andrey Zablovskiy said.
what we are risking with?
The life of statesmen would be too simple, if to solve budgetary problems it was enough just to introduce a new tax (or extend the old one to a wider audience).
The most important phrase for every tax innovator was spoken back in the ancient Soviet cartoon “Cipollino: “After the air tax was introduced, you began to breathe less! It’s outrageous!”
In order not to go into too complex and abstract reasoning, trying to “grasp the immensity”, we consider the problem “on the fingers”, using only one service from one of the digital giants – Facebook.
You can advertise for your business on Facebook, Instagram or Messegger from your personal account – as an individual. That is, all advertising is subject to the bill and should be subject to VAT. In Russia, after the introduction of a similar tax of 18%, almost all services from Internet giants for consumers rose by 18-20%.
There is no serious reason to believe that we will have a different way. What does the cost of advertising on Facebook, Instagram and Messenger mean 20% for us? The most massive advertiser on these sites is small, even, one might say, small business. He is attracted by the simplicity of work and the relative cheapness of advertising campaigns.
Conducting full-fledged advertising campaigns even at the existing prices is not an easy task for them. And if advertising rises sharply, it will become simply impossible. This is just an extra blow to the already breathing small business that has not been tired of pleasing with tax gifts lately. This is a potential reduction in the volume of advertising services provided.
It may well turn out that the total losses from this tax innovation will be much higher than the positive effect – no one seems to have conducted a serious analysis. At least the general public does not know anything about this.
“There is another problem – administration. It is not yet clear how this will be administered. It may lead to the fact that we will collect less taxes than it will be spent on the collection itself. The big question is how much the newly created tax service will be able to administer this tax in general,” Andrey Zablovskiy noted . And summarizes: “Do not run ahead of the rest in order to get a short-term tax effect with further negative consequences”
Representatives of domestic business also have similar sentiments. “We hope that bill No. 2634, which proposes to introduce VAT on electronic services, will not leave offices and will not be adopted.
Such innovations will greatly hinder the government from implementing its ambitious digitalization plan. If such a bill is adopted, Ukraine and the e-commerce market will especially become less attractive and highly risky for investors and international companies. Also, it seems completely illogical for us to introduce new taxes without learning how to administer existing ones, ”Alexandra Sergiychuk said, head of the legal department at EVO (known for a number of major projects, including Prom.ua).