Main points
- During the war in Ukraine, the number of individual entrepreneurs increased abnormally, which is associated with the expansion of shadow schemes of “business fragmentation”.
- Fractional schemes allow VAT avoidance, and overcoming them requires legislative changes and tax service reform.
Hetmantsev spoke about the abnormal growth in the number of sole proprietors / Collage of Channel 24, photo Depositphotos
During the full-scale war in Ukraine, the number of individual entrepreneurs increased sharply, but this does not mean economic growth at all. Danylo Hetmantsev believes that there is only one reason for this – the prosperity of shadow schemes in business.
Why is the number of sole proprietors increasing and how is this related to “business fragmentation”?
The chairman of the Verkhovna Rada's tax committee, Danylo Hetmantsev, considers the growth in the number of individual entrepreneurs in recent years to be abnormal, writes “Ekonomichna Pravda”.
It is an absolute anomaly when the number of individual entrepreneurs increases during the war. Our economy has collapsed. If we continue to ensure GDP growth at this pace, we will reach the volumes of 2021 (in real prices) only in 2038. Where do we get the “plus” 200 thousand individual entrepreneurs?
– the official said.
According to him, such a trend may indicate the expansion of the shadow economy, in particular “business fragmentation” schemes.
For example, in Ukraine there are a number of retail chains of stores that are not registered legally, but split their business into a number of individual entrepreneurs in order to avoid paying VAT. At the same time, there is also a “white” business that operates honestly.
The state has no right not to ensure equal economic conditions, a single law for all. After all, it then simply makes these “whites” who pay taxes suckers,
– says the head of the tax committee.
How does the business fragmentation scheme work?
Business fragmentation schemes allow entrepreneurs not to show the entire turnover. Economist Oleg Getman and tax consultant Mykhailo Smokovich told this in comments to Channel 24 .
Large business fragmentation schemes are particularly common in retail and food service. They become noticeable when a supermarket or restaurant issues multiple payment receipts.
Oleg Getman
Economist, coordinator of expert groups of the Economic Expert Platform
All these splitting schemes in restaurant and retail chains are built on the fact that they are not just split into individual entrepreneurs, but also individual entrepreneurs do not issue the vast majority of fiscal checks. That is, they do not show their turnover and thanks to this they can continue to exist as individual entrepreneurs. If you force them to show all their turnover, then the splitting scheme becomes almost uninteresting. Because the limits will end in a month or a few weeks. Too many of them will have to be changed, so it will be more profitable to switch to a common system.
To combat the business fragmentation scheme, the Ukrainian tax service needs a reboot. To do this, they need to pass bill No. 9243, but its consideration is being postponed. Tax consultant Mykhailo Smokovich also believes that the tax service currently does not have enough resources to expose the schemes , so it should be given more opportunities.
Mykhailo Smokovich
Accountant, tax consultant
The tax office should detect such cases, but its tools are limited. If detected, it can interpret this as a fragmentation of the business and try to collect all these individual entrepreneurs together in the acts. And all the turnover that went through this store should be taxed not under the simplified system, as the company did, but under the general system. But here it is very difficult for the tax office to collect everything together, detect and hold the company itself accountable.
What damage do shadow schemes bring to the state?
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The shadow economy in Ukraine causes losses to the budget of up to 1 trillion hryvnia, mostly due to salaries in envelopes, smuggling, and excise trade.
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Salaries in envelopes cause budget losses of 140-280 billion hryvnias, and “gray imports” and smuggling – 120-185 billion hryvnias.