📢 🔔Recently, a draft law has been actively discussed, which provides for the mandatory registration of a much wider range of individual entrepreneurs as payers of value added tax.

Members of the All-Ukrainian Association of the Electronic Cigarette Market do not like this story, to put it mildly. Not because businesses don't want to pay taxes, but because the approach itself raises many questions and concerns.

🔎 We perfectly understand the context in which such an initiative appears. The country lives in a state of full-scale war, the budget is constantly under pressure, resources are limited, and no one has canceled obligations to international partners.

🇺🇦 It is obvious that the state is looking for additional sources of filling the budget, and in this logic, the appearance of such a bill looks predictable. It is also obvious that there are also consequences of decisions regarding budget distribution in previous periods and budget parameters for the current year. Probably, this was one of the triggers for the demands from the IMF. But even with such an understanding, a simple question arises: is this really the only and best way? 🤔

In our opinion, it is possible to find money in the budget in other ways, without putting so much pressure on small businesses.

⚠️ The biggest concern is not the very fact of the existence of VAT as a tax. This is not the problem at all. The problem is in the administration of VAT for small and micro-businesses that work in the FOP format. The draft law actually expands the range of entrepreneurs who, after reaching the threshold of one million hryvnias in turnover, will be required to become VAT payers.

At the same time, we see the complication of accounting and reporting, a change in the logic of single tax rates as a tool of coercion, rather than a conscious choice. All this together creates a serious operational burden that most small businesses are simply not ready to take on.📈

🧾 VAT is one of the most difficult taxes to administer. And it is difficult not only for the entrepreneur, but also for the state itself. This is constant work with invoices, accounting, reporting, control, checks, errors and corrections. According to independent estimates, the administration of VAT at one business entity can require dozens, and sometimes hundreds of man-hours per month.

⏱️ For large businesses, this is solved by staffs of accountants and complex IT systems. For the FOP, this means something completely different: the need to keep an accountant, an increase in fixed costs, an increase in the cost price and a constant risk of fines due to errors that are inevitable in such a complex system. ⚖️

🔍 A separate and perhaps the most painful issue is the effect for detinization. One of the key strategic goals of our association is detinization of the market and creation of conditions under which it is more profitable to work legally than in the shadows. And this is where we see a serious risk.

A significant part of entrepreneurs who today try to work "in white" may simply not withstand the additional administrative and financial pressure. Someone will close the business, someone will go into the shadows, someone will look for semi-legal formats of work.

⚠️ At the same time, business fragmentation schemes, which are so often associated with arguments in favor of these changes, will not disappear anywhere. They just evolve. As a result, we can see a situation where not only large companies break up business into FOPs, but also FOPs themselves begin to break up business into even smaller FOPs. It is obvious that this is not the result that the state is counting on!

💸 There is also a purely economic aspect that is difficult to ignore.

The math in many market segments is very simple: an entrepreneur who works legally with VAT often cannot compete on price with someone who works in the shadows. Small business margins are not limitless, and additional administrative costs eat into them quickly. As a result, either the price for the end consumer increases, or the business becomes unviable. It's not a question of not wanting to pay taxes — it's a question of survival. 📉

✅ That is why we are convinced that, in its current form, such changes may have an effect contrary to the declared goals. Instead of expanding the tax base and detinization, we risk the growth of the shadow sector and the reduction of real small businesses.