Ukrainian Prime Minister Oleksiy Honcharuk has revealed a new approach to supporting and taxing the country’s IT industry.
During a meeting with representatives of the export-oriented IT industry in Kyiv on Sept. 4, Honcharuk proposed creating a fund for developing the industry’s human capital. Called IT Creative, the fund’s money would go to scholarships and grants for IT students and scholars and would also be invested in IT education, the Ekonomichna Pravda news site reported. The proposed fund would be managed by the IT industry itself.
“One of the problems that are holding back the IT sector’s development is a shortage of talent,” Honcharuk said, according to the RBK-Ukraine news site. “The sector is growing by 25-30,000 specialists a year, but the universities only graduate 16,000 students.”
During the same meeting, Serhiy Verlanov, head of the State Tax Service, announced a proposal to introduce a new tax on IT employees registered as individual entrepreneurs to fund IT Creative. That tax would start at 1 percent in 2020 and gradually rise to 5 percent by 2024.
However, transition to this new taxation system would be voluntary for the IT companies, Verlanov said.
The changes in question will be implemented in fall 2019, according to slides from the meeting published by Ekonomichna Pravda.
Long heralded as one of Ukraine’s most dynamic industries, IT has also been a source of conflict over taxation. IT employees are often registered as private entrepreneurs and taxed at a simple 5-percent rate.
However, in February, the Ministry of Social Policy introduced a bill to parliament altering taxation for individual entrepreneurs. Among its proposals was reclassifying some IT entrepreneurs as company employees. This would mean that they would have to pay a 19.5-percent income tax and employers would be required to pay an additional 22-percent tax on their gross salary.
The Ministry claimed that the bill did not target IT, but was instead intended to crack down on supermarket chains, restaurants, and other large retailers who use employees with private entrepreneur status to avoid taxes.
Nonetheless, the bill sparked outrage among techies. Were IT employees to face a sharp increase in taxes, many would likely choose to relocate abroad, thereby fueling Ukraine’s longstanding problem of brain drain.
The bill was ultimately never passed.
Protecting business
At the same meeting with IT representatives, Honcharuk also called on the Security Service of Ukraine (SBU) to liquidate its division that investigates economic crimes.
The SBU has faced regular accusations of using its power to investigate economic crimes as a means to extort money from and seize control of businesses. Even searches of offices — a routine practice in Ukrainian economic cases that is often carried out by masked men — have a chilling effect on foreign investment in the country.
“We expect that this month, we will pass all necessary laws to divert law enforcement and the security agencies from business and create comfortable conditions for (business) development,” Goncharuk said, according to the Interfax Ukraine news agency.
