The BRDO Office and the Union of Ukrainian Entrepreneurs (SUP) launched the study “Regional Doing Business”, the main purpose of which is a systematic analysis of the business climate for small, medium and large businesses in all regions of Ukraine and in Kyiv.
The first stage of the study was a systematic analysis of local taxes and fees, and the main sources of information – decisions of city councils in regional centers and in Kyiv. There is no need to prove that the higher the taxes, the worse the conditions for doing business are. However, the smaller the taxes, the less number of administrative services for citizens and enterprises the local government bodies can provide. Therefore, each region chooses its own strategy creating a unique tax climate for entrepreneurs, which is the subject of study at this stage.
They analyzed six main local taxes, the rate of which can be changed by local authorities within limits prescribed by the state, because these revenues come to the local budget, particularly:
- taxes on immovable property other than land plots;
- tourist taxes;
- land taxes;
- land rentals;
- single tax rates for group 1 and for group 2.
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The analysis was conducted on the basis of decisions of local councils published on websites of the relevant bodies as public data.
The general trends in the country indicate a lack of dynamics of local authority responses to changes in the government policy. In particular:
- Only 17% of local taxes regulated by local government bodies were changed in 2017. It should be noted that the tax burden on small businesses has increased dramatically over the past year due to an increase in minimum wages and the minimum subsistence level. And just a third of the regions have taken at least a step to reduce tax burdens on businesses;
- In 2017, a new minimum wage in the amount of 3,200 hryvnas was set. This led to an increase in taxes on real estate and the single tax for group 2 of payers in direct proportional. The calculation formula itself has not changed – 20% of the minimum wage. If we talk about figures, while payers of the group 22 should pay an average of 275 hryvnas in 2016, this is already 64- hryvnas in 2017. That is, there was an increase in the tax burden by 132%, which negatively affected the business climate for small businesses throughout the country. In order to improve the situation, in Kharkiv, Odesa and Sumy, the tax rate was reduced from 20% to 10% according to the decisions of local city councils. In Ternopil and Bila Tserkva, this tax was reduced to 15%. Accordingly, if compared with the previous year, the tax rate increased by only 16% for entrepreneurs of Kharkiv, Odesa and Sumy, and for Ternopil and Bila Tserkva – by 74%. These examples of actions of local authorities to reduce the tax burden on entrepreneurs clearly have a positive impact on the business climate in the mentioned regions.
- By analogy, Bila Tserkva reduced the single tax rate for payers of the group 1 from 10% to 8%. Thus, changes in payments remained unnoticeable in comparison with the previous year. This is another example of local government’s actions aimed at reducing tax burdens.
- The reduction in the tax rate on immovable property other than land plots in seven regional centers also had a positive impact on business development. The size of this tax, as mentioned earlier, directly depends on the size of the minimum wage, which sharply increased in 2017. Therefore, local government bodies try to reduce tax burdens on businesses by reducing tax rates.
In general, the situation with taxes shows lame tries of local authorities to improve the business climate in the region. The negative factors that directly lead to this are: the obsolete system of taxation, the centralized definition of basic rates and their range at the level of the entire state. This reduces the desire of local authorities to deal with this issue and try to establish a dialogue to improve the business climate in the region and increase its investment attractiveness.
You can see the final results of the study in early September this year.
The next stage will be the interviewing of entrepreneurs in all regions of Ukraine and in Kyiv in four areas:
- Obtaining construction permits;
- Registration of land plots for real estate;
- Connection to electricity;
- Setting up an enterprise.
You can join the study by filling out forms following the above link right now. The principle of filling out the forms: one form – one regional center, where the business is conducted. If you have any questions, you can contact Anton Maleyev, the analyst of the Better Regulation Delivery Office who coordinates this study – 095 708 46 28 or by e-mail – [email protected].