A deliveryman wearing a protective face mask pauses by a double-deck tourist bus decorated with a huge mask in Kyiv on March 18, 2020. Ukraine late on March 16 announced shutdowns of public transport, bars, restaurants and shopping malls to stem the spread of the coronavirus after President Volodymyr Zelensky promised to act “harshly, urgently, perhaps unpopularly”. The government supported Zelensky’s proposals and introduced restrictions on domestic movement, including full closure of the country’s three metro systems in Kyiv, Kharkiv and Dnipro until April 3. (Photo by Sergei SUPINSKY / AFP)

Parliament has adopted a law designed to ease the strain on businesses and workers during the nationwide COVID-19 quarantine. But how effective will it be?

The legislation slaps a moratorium on unified social contribution for individual entrepreneurs from March 1 through April 30 and suspends penalties for businesses that failed to pay the contribution within that time frame. The moratorium also affects land and real estate taxes for March and April. Fines for late or incomplete tax filings have been postponed through the end of May, with the exception of VAT and excise taxes. 

Personal income taxes would be reduced for individual entrepreneurs. Tax inspections and audits have been pushed back to the end of May; other inspections to July. A host of other measures were also introduced to ease the burden that the great shutdown has already placed on businesses. 

This bill “will help businesses survive the quarantine,” lawmaker Yaroslav Zheleznyak from the Voice party wrote on his Facebook page. 

Yet legal experts say that the bill, which passed the Rada on March 17, may have a limited impact on businesses. Some of the tax breaks do not go far enough to have the effect the government intended. Meanwhile, the legislation has multiple ambiguities in terms of what kind of tax violations will be exempt, according to Victoriya Fomenko, a tax partner with Integrites. 

“There is uncertainty in the wording of the legislation, which can be interpreted not in favor of the taxpayers,” she said. 

Meanwhile, the parts of the bill that were designed to help employees may also fail to help the most vulnerable workers, from medics fighting the coronavirus, to couriers that fill out the massive gig economy.

Tax breaks

Ukraine’s unified social contribution is an employer tax of up to 22% of each employee’s salary, up to a cap amount based on the current minimum wage. 

The legislation eliminates the need for individual entrepreneurs to pay this tax for March and April. This can save them a bit of money, “though not much, as many of such taxpayers pay a minimal social tax of Hr 1,000 per month,” Constantin Solyar, a tax partner at Asters, wrote in an email.

Legal experts also point out that even though individual entrepreneurs will enjoy the tax break, their employees will have no such luxury.

Fomenko said that businesses expected more help from the government as the nationwide shutdowns slash their incomes to zero. 

“There were some expectations by business like that they would be released from payment for income tax, from unified social contribution for this period,” she said. “This law just released [them] from fines for non-timely payment but did not release from payment of the contribution itself.” 

She added that while penalties for non-payments in March and April have been suspended, payments for February are coming due now. If businesses fail to pay for them, as some will struggle to do due to the current situation, they will be liable for the fines and penalties the government said it wants to help them avoid. 

Solyar said that the focus of tax breaks and moratoria on penalties should target small and medium businesses, which have been especially hit by quarantine closures. Instead of giving a little bit to everyone, he noted, the government should have identified the most vulnerable businesses and given them more to survive. 

“Where they clearly missed the point was the two months extension for filing and payment of individual income tax,” Solyar wrote. “This is the type of income that has to be reported by individuals on an annual basis and usually targets incomes that are not from employment or business activity of private entrepreneurs.” 

“In many cases people do such filings when they receive dividends from foreign vehicles, renting out real estate, and declaring gains on sale of company shares – i.e., the types of transactions that vulnerable social groups do not have.”

Labor protections

Inna Kudinska, a lawyer with the NGO Labor Initiatives, identified several issues in the provisions that affect workers. For example, while the current labor code limits unpaid leave to 15 calendar days per year, the new law strips away this limit based on the length of the quarantine. 

Another provision recommends that employers make remote work available to employees, but does not make it an obligation. This is especially important for public employees who have to be at work but have no guaranteed way to be able to work from home. 

Nor does the bill offer guidance on how employees can declare a so-called standstill condition at their workplace, which would enable employees to work remotely. Whether or not standstill is declared affects how employee salaries are calculated. Details on standstill conditions are buried in various local by-laws and March 17’s bill does nothing to clarify it. This leaves the standstill declaration and the subsequent salary changes in the employer’s hands. 

Moreover, people within the gig economy, including couriers and drivers, will remain without protection under the current legislation, she added. Many will continue working through the quarantine, risking their health, without any protective guarantees from their companies. 

Finally, the bill establishes a bonus for medical workers who are on the front lines battling the coronavirus. While media have reported the bonus as 200%, it is actually only “up to” 200%, Kudinska pointed out. The actual amount of the bonus is wholly in the employer’s discretion.