Main points
- The new tax bill may oblige individual entrepreneurs on the simplified system to become VAT payers, which will affect the prices of goods and services.
- The introduction of VAT for individual entrepreneurs may lead to the closure of businesses or their splitting into several individual entrepreneurs.
How the adoption of the tax bill will affect the cost of goods and services in Ukraine / Collage by Channel 24, photo by Getty Images, Unsplash
An individual entrepreneur on a simplified system may become a VAT payer. This is stated in the new tax bill initiated by the Ministry of Finance. There is an assumption that if this bill is adopted, it will affect not only entrepreneurs, but also consumers. After all, due to the higher tax burden, businesses will be forced to reconsider their expenses and change the cost of their goods and services.
How can the new law on taxation of individual entrepreneurs affect prices?
As economist Oleg Getman explained to Channel 24 , the likelihood that the new tax bill will come into effect in 2027 is quite low. He predicts that it will either come into effect in 2028, or in the year when Ukraine joins the EU.
In addition, according to Hetman, entrepreneurs will be reluctant to switch to VAT if the bill is passed, in particular, he says that only 20% to 30% of individual entrepreneurs can do this. And all the rest will most likely use the scheme of splitting the individual entrepreneur, opening it to one of the family members.
Oleg Getman
Coordinator of expert groups of the Economic Expert Platform
Accordingly, it is not worth expecting that after the change in taxation, the prices of all goods will increase sharply. This will affect more those who will still pay VAT. At the same time, their share in the total turnover is relatively small, and therefore the overall impact on prices will be limited.
Why might the service and trade sectors be the first to suffer?
However, analyst Yuriy Shchedrin, in a conversation with Channel 24, expressed the opposite opinion regarding the VAT for individual entrepreneurs, which is currently under discussion. As Shchedrin explains, the changes will affect not only entrepreneurs, but also ordinary Ukrainians, who will be forced to pay more for goods or services if the bill is adopted.
Yuri Shchedrin
Analyst at the NGO “Center for Urban Development”
The introduction of VAT for individual entrepreneurs will hit those working in the services and trade sectors the hardest. According to preliminary estimates, this will affect about 250,000 individual entrepreneurs.
In addition, taxes on digital platforms and parcels from abroad, which amount to up to 150 euros, will also affect prices in Ukraine.
- The fact is that many retail chains sell the same goods, for example from China, on the Ukrainian market with a markup. The introduction of a tax on parcels from abroad up to 150 euros will affect the ability to order them directly.
- Therefore, consumers will buy these goods in retail chains in Ukraine. And this, in turn, will encourage chains to set prices more freely.
The amount of taxes, where there is VAT at the level of 18% and 5% military duty, is unrealistic in modern conditions. Many businesses may not be able to bear this: from beauty salons to consulting firms. Thus, they will have two options: either close down, or split the business into several individual entrepreneurs,
– the analyst concludes.
Please note! After the Rada rejected the draft law on VAT for individual entrepreneurs in early March, the Ministry of Finance of Ukraine has formed a new draft law, which currently retains some of the key innovations, namely the expanded application of VAT for individual entrepreneurs. This means that if an entrepreneur's annual income exceeds 4 million hryvnias, he is obliged to pay this tax.
What is the current situation with prices in Ukraine?
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Greenhouse cucumbers in Ukraine are increasing in price. All due to a reduction in supply, as well as worsening weather conditions. Currently, greenhouse plants sell cucumbers at a price of 135 – 175 hryvnias per kilogram. For comparison, at the end of the previous week the price was 10% lower.
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The same situation applies to tomatoes, as their shipments have decreased, in particular from Turkey. At the end of last week, the price of vegetables fluctuated in the range of 120 to 140 hryvnias per kilogram.
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As a reminder, fuel prices in Ukraine have increased significantly over the past month due to the aggravation of the situation in the Middle East, which has provoked a rise in the price of world oil. As of the morning of March 23, the average cost of A-95 gasoline is 72.79 hryvnias per liter, and diesel fuel is 83.89 hryvnias per liter.