BRDO, jointly with civil society organizations and industry associations, calls to preserve the simplified taxation system for internet providers – SMEs in Ukraine. A letter with this call was addressed to the President, Parliament, Government, and the National Security and Defense Council (NSDC) of Ukraine.
What happened?
In May 2024, the State Tax Service of Ukraine (STS) published a clarification on its website stating that the simplified taxation system cannot be applied to internet service providers that are legal entities. According to it, starting from October 1, 2024, the STS banned small business internet providers from using the simplified tax model. The STS justifies its actions by citing the entry into force of the “Law on Electronic Communications” on January 1, 2022, mistakenly interpreting internet access services as services for maintaining and operating electronic communication networks. However, this interpretation directly contradicts the provisions of the Tax Code, Articles 19 and 57 of the Constitution of Ukraine, and the official clarification of the electronic communications regulator (NCEC).
How will this impact Ukraine’s electronic communications sector?Internet access has become an essential part of modern life, and in times of war, it serves as a vital tool for receiving timely information about threats and ensuring survival. Ukraine’s fixed broadband internet market is highly competitive, with more than 4,000 internet providers authorized by the national regulator (NCEC), many of which are small businesses that use the simplified taxation system. According to the regulator’s 2023 data, the availability of fixed broadband networks, particularly in rural areas, increased by 25%, and the number of connections to passive optical networks (PON), which consume less electricity, grew by over 41%.
The position of the State Tax Service could lead to higher costs and reduced internet accessibility for Ukrainians.
Due to the challenges in tax administration and the rising expenses for accounting and reporting under the general tax system, many small internet providers may cease operations. This is especially critical in rural areas, front-line regions, and recently de-occupied territories, where large providers typically show little interest due to low profitability, leaving small businesses as the main providers of services.
What could be the consequences of this decision?
- The risk of losing internet access for more than 200,000 private subscribers, institutions, and organizations in 2,302 settlements where individual entrepreneurs are the sole internet service providers;
- A decline in service quality and internet accessibility, especially during emergency power outages;
- Increased vulnerability to physical and cyberattacks due to the centralization of Ukraine’s Internet network;
- Loss of up to 462 million UAH in revenue for local budgets;
- Higher internet access costs for Ukrainians;
- Reduced capacity of small internet providers to recover and grow;
- A worsening investment climate and loss of business trust in state institutions;
- Monopolization of the fixed Internet access market of Ukraine.
BRDO calls for:
- Ensuring the rule of law in the activities of the State Tax Service.
- Preserving the simplified taxation model for small internet providers.
Signatories of the Appeal:
- The Better Regulation Delivery Office (BRDO);
- Internet Association of Ukraine (IAU);
- Association of Copyright Holders and Content Providers (APPC);
- Analytical Center “Ukrainian Institute for the Future”;
- Ukrainian League of Industrialists and Entrepreneurs (ULIE);
- Ukrainian Confederation of Operators and Internet Services (UKOS);
- Association of Lawyers of Ukraine;
- Roman Perun, military veteran, volunteer (Odesa region);
- Maksym Smilyanets, co-founder of the Telecom Ukraine community;
- Viktoria Opanasyuk, co-founder of the Telecom Ukraine community;
- Human Rights Platform NGO;
- Eastern Variant NGO.
We invite you to support our position and spread information about it.