Legislative Initiatives to Abolish Tax Loosenings during Martial Law (Draft Law No. 7311)

The parliament, at the initiative of people’s deputies headed by Hetmantsev D.O., registered the Draft Law No. 7311 “On Amendments to the Tax Code of Ukraine and Other laws of Ukraine on Certain Taxes and Fees During Martial Law, State of Emergency” and a number of alternative draft laws – № 7311-1, 7311-2, 7311-д.

According to the initiators of the Draft Law No. 7311, its purpose is to provide during the martial law conditions for the proper functioning of the economy, as well as the proper filling of the revenue side of the budget through the receipt of tax and customs payments.

What changes are proposed?

1. 1. For Single Tax Payers

Abolition of exemption from VAT and import duties on imports of goods by entrepreneurs who are in groups I–III of the simplified taxation system and are not VAT payers

The corresponding tax easing was introduced in order to prevent a shortage of products due to the armed aggression of the Russian Federation against Ukraine. According to lawmakers, the budget did not receive UAH 417 million in a week as a result of the exemption, and non-essential goods account for a significant share in the structure of imports. In addition, the legislative initiative on duty-free import of goods harms national producers, who are VAT payers.

Expanding the list of business entities that have the right to choose group 3 of the single tax at the rate of 2% during martial law

Thus, the entities that produce water to meet drinking and sanitary needs will be able to choose a special tax regime.

Regulation of the issue of accounting for repayable financial assistance for single taxpayers of group 3 at the rate of 2%

If the repayment period of the received financial assistance provided on a repayable basis exceeds 12 calendar months from the date of its receipt, the single taxpayer of group 3 at the rate of 2% (excluding VAT) includes the amount of unpaid financial assistance within 12 calendar months in the income amount. In this case, in the period of return, such a single taxpayer has the right to reduce income by the amount of refunded assistance.

This opportunity is provided only to payers of group 3 with a special tax regime.

Single tax payers at the rate of 3% (including VAT) or 5% (excluding VAT) do not have the opportunity to reduce income in the event of a refund of repayable financial assistance after 12 calendar months from the date of its provision.

2. 2. Military Duty

It is proposed to increase the rate of military duty from 1.5% to 3% during martial law and state of emergency.

According to forecasts, the introduction of an increased rate of military duty will provide additional budget revenues of at least UAH 9 billion per month.

In addition, the Draft Law provides for temporary (for the period of martial law) exemption from taxation of military income in the form of financial support for law enforcement officers, servicemen and employees of the Armed Forces, National Guard, Secrity Service, Foreign Intelligence Service, State Border Service, Ministry of Internal Affairs and other military formations for the period of their direct participation in the implementation of measures to ensure national security and defense, repel and deter armed aggression by the Russian Federation.

Alternative Draft Law No. 7311-1 proposes to determine the targeted use of part of the proceeds from the military duty exclusively for the needs of the Armed Forces.

If the Law is adopted, the relevant changes in the calculation and payment of military duty will take effect from June 1, 2022.

3. 3. For VAT Payers

Introduction of the possibility to receive VAT refund in the form of domestic bonds with a maturity of 5 years

This option can be chosen by VAT payers who have submitted VAT declarations for January 2022 or specifying calculations to these declarations before May 1, 2022 (estimated amount is UAH 17 billion).

This innovation is introduced due to lack of funds in the state budget for VAT refunds.

Currently, VAT refunds are not made, despite the fact that many companies need working capital primarily to restore production and save jobs.

Initially, it was planned to abolish 7% VAT on the import of motor fuel, returning the former rate of 20%, and zero excise duty on gasoline and liquefied gas. However, the committee did not support the abolition of this benefit, so fuel should continue to be taxed at a reduced VAT and without excise duty.

4. 4. Charitable Aid

Some aspects of providing charitable aid to individuals have been clarified

Thus, charitable aid provided to victims of armed aggression of the Russian Federation during martial law or state of emergency is not subject to personal income tax, provided that such assistance is distributed through the state or local budget or through bank accounts of charitable organizations, the Red Cross of Ukraine, which are entered in the Register of Non-Profit Organizations and Institutions.

5. 5. Amendments to Customs Legislation

In terms of customs payments, it is proposed:

– to abolish VAT, excise and customs benefits when importing vehicles by citizens into the customs territory of Ukraine

That is, it is again necessary to pay duties, excise taxes and VAT (20%) when importing cars.

Currently, the amount of benefits is more than UAH 100 million hryvnias, more than 3,000 cars have been imported.

At the same time, the Main Committee supported the initiative to exempt from taxation the operation of importing individuals to the customs territory of Ukraine all-wheel drive jeeps until 2017 production, necessary for the needs of the Armed Forces.

– to restore the taxation of import duties on goods imported by enterprises for free circulation.

6. 6. Amendments to Pension Insurance Legislation

It is proposed to include  periods during which such persons legally did not pay insurance premiums due to martial law in the insurance record of individual entrepreneurs, persons engaged in independent professional activity, members of the farm enterprise.

In case of acceptance of the above-mentioned changes, it will be considered that the insurance sums have been paid in the amount of the minimum insurance premium determined by the legislation.

7. 7. Amendments to the Legislation on Collection and Accounting of a Single Social Contribution

It is assumed that employers are obliged to submit certain information about employees to the Pension Fund of Ukraine in order to record the employment of the employee

In particular, information on employment, transfer from one structural unit to another or transfer to another permanent position or job, dismissal, reinstatement, suspension/renewal of the labor agreement, as well as the assignment, change or deprivation of rank, class, titles, categories, swearing-in, internships, training, trade union membership, etc., if they are absent from the register of insured personsб shall be submitted by the insured (employer and other persons obliged to pay a SSC) through the web portal of electronic services of the Pension Fund of Ukraine.

It should be noted that the Draft Law is currently being finalized and prepared for consideration in the first reading. The Main Committee on Finance, Tax and Customs Policy  recommends adopting the revised Draft Law following its first reading. In preparing the Draft Law for the second reading, it is proposed to take into account the following proposals of the committee:

– to provide for a reduction in the amount of excise duty relative to the age of the car;

– to provide for a reduction in the amount of PIT for internally displaced persons;

– for VAT payers – to determine for the period of the legal regime of martial law, state of emergency the rules of formation of tax liabilities and tax credit, submission of reports on the basis of registered tax invoices.

If adopted, the Law “On Amendments to the Tax Code of Ukraine and Other laws of Ukraine on Certain Taxes and Fees During Martial Law, State of Emergency” (Draft Law No. 7311) will enter into force after its official promulgation, except for certain provisions, including the increased rate military duty, which is planned to be introduced from June 1, 2022.

We remind you that the Law “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine Concerning the Peculiarities of Tax Administration of Taxes, Duties and Single Contribution during Martial Law” (Draft Law No. 7360), will come into force soon, which provides for, among others, restoration of in-house and unscheduled tax audits, reporting, registration of tax invoices and VAT refunds.

Lawyers and concusltants of K.A.C. will be happy to advise on issues related to changes in the law in connection with the imposition of martial law, as well as provide comprehensive legal support.

Read more:

Tax and Customs Disputes in the Conditions of Armed Aggression