Ukraine’s information technology industry is continuing its meteoric ascent.
According to data from the National Bank of Ukraine, the industry’s exports grew by 30.2% to $4.17 billion in 2019, slightly faster than in 2018, when IT exports grew by 28% to $3.2 billion.
According to estimates by the industry group IT Ukraine Association, tech exports now dwarf even Ukraine’s wheat exports, which amounted to $3.65 billion last year. Although the whole agriculture industry still beats IT, contributing around $18 billion annually.
The increase of IT exports means that in 2019, taxes and fees from the sector going into the state budget reached Hr 16.7 billion (about $680 million), compared to Hr 13 billion in 2018.
Ukraine’s IT industry is the fastest growing sector of the economy, now comprising about 5% of the total gross domestic product. Outsource services account for the majority of the IT sector, with many foreign companies taking advantage of Ukraine’s highly educated techies.
“To keep up with the current rate of growth amid fierce global competition for talent, we need, first and foremost, a well-grounded approach by the state to review existing tax models and develop IT education,” Konstantin Vasyuk, the head of Ukraine IT Association, said in a statement.
Oleksandr Bornyakov, Ukraine’s deputy minister of digital transformation, told the Kyiv Post the same thing. According to him, one of the largest limiting factors is education. While advanced by global standards, the ministry estimates that up to 40,000 IT positions remain unfilled because Ukraine’s education system does not churn out enough graduates to meet demand.
Experts have told the Kyiv Post that the industry is gradually moving from a pure outsourcing destination to general tech services that add value for clients, improving Ukraine’s competitiveness with European, Indian and American companies.
Tax reform in the IT sector is another perennial hot topic. About nine out of 10 IT specialists work as private entrepreneurs, regardless of whether they’re contractors or full-time employees. This is an incentive for companies and entrepreneurs alike, who can reduce their taxes and enjoy the flexibility entrepreneurs enjoy in the field.
However, using entrepreneurs as employees is legally ambiguous and presents a tax risk that deters major global players, strict on compliance, from entering Ukraine. The low tax base means that there is less money to invest in expanding educational attainment to fuel the industry.
Previous attempts to change the tax structure for individual entrepreneurs have drawn condemnation from IT workers and companies as being tantamount to tax hikes that would cause industry players to pack up and leave.
The government is working on several alternative tax structures that will likely not go into effect until 2021.
