30 May 2023 13:25

Ukraine's Rada passes bill abolishing 2% flat tax under IMF program in first reading

MOSCOW. May 30 (Interfax) - The Ukrainian Verkhovna Rada backed in the first reading a government-proposed bill abolishing a 2% flat tax and other benefits for entrepreneurs from July 1, 2023, thus fulfilling one of the conditions for cooperation with the International Monetary Fund (IMF), after the delay in passing this bill caused concern, Ukrainian media said on Monday.

"The adoption of the bill will help increase revenues to the state and local budgets in 2023 by about 10 billion hryvni," Ukrainian Finance Minister Sergei Marchenko said when commenting on the parliament's decision.

Under the bill, individual entrepreneurs and legal entities will no longer be able to continue paying the group 3 single tax with a flat rate of 2% of their income and will have to resume paying the single tax levied on individual entrepreneurs from the groups 1 and 2, according to the report.

The bill also envisages resuming documentary checks, but under martial law they will be conducted only if there is safe access to territories, buildings and other assets that are used in business operations and/or are taxable items, as well as documents and other information related to the calculation and payment of taxes and fees.

It is has been proposed to reinstate penalties for violations of tax laws, the correctness of accrual, calculation and payment of a single fee for mandatory state social insurance and the procedure for using cash registers and to reinstate the deadlines determined by tax laws, the ministry said.

At the same time, the bill does not raise taxes or introduce new tax rates, Marchenko said. Rather, its objective is to return the country's tax legislation to its pre-crisis state.

The new law is expected to come into force on July 1, 2023, in line with agreements reached with the IMF.

As reported, the legislation is one of the 19 structural benchmarks of the IMF's Extended Fund Facility (EFF) of $15.6 billion for Ukraine, endorsed by the IMF Executive Board on March 31.

After the disbursement of the first tranche, the program's schedule envisions providing three more tranches of SDR664 million, or $893 million each, in mid-June and October of this year and in late February 2024 following the first, second and third reviews, which will evaluate Ukraine's progress in fulfilling its commitments with deadlines at the end of April, June and December, 2023, respectively.

The IMF's first review mission is currently working in Vienna. Its results may be announced before the end of May.