Review entrepreneur benefits and avoid new taxes – ANTS analyst recommendations for 2023

Review business benefits, no new taxes or fees, and a return to the standard rate of value added tax on fuel

The head of the analytical department in National Interests Advocacy Network “ANTS” examined the state of implementation of the state budget for the first half of 2022 and made practical recommendations for 2023.

“The state budget for 2022 was adopted in December 2021, and nine changes were made to the budget during 2022 as a result of russia’s military aggression and drastic changes in priorities.” There was also a shift in the macroeconomic indicators used to forecast budget revenues. Thus, despite the planned 3.8% growth, real GDP fell by 28.5% in the first half of the year. With a forecasted inflation rate of 6.2%, the actual rate for January-July was 18.2%, while the NBU predicts that inflation will be higher than 30% based on the year’s results, – says Neskhodovskyi. – The dollar exchange rate for 2022 was forecast in the draft budget to be between 28.6 and 28.7 at the end of the year, but the market rate was much higher. As a result, on July 21, the NBU immediately adjusted the official exchange rate of the hryvnia to the dollar to UAH 36.5686/dollar, a 25% increase. Furthermore, the unemployment rate has risen significantly, there are millions of internally displaced people in the country, and more than 5 million have left the country entirely.”

In addition, as a result of the occupation of Ukrainian territories, the destruction of infrastructure, the production capacities of enterprises, as well as the blocking of seaports and other transport corridors, foreign trade has significantly deteriorated. All these factors had a significant impact on the performance of state and local budget revenues.

Thus, according to the estimates of the Accounting Chamber, the budget received at least 176 billion hryvnias in the first half of 2022.

After considering all factors, the analyst came up with five key recommendations for state budget revenues in 2023:

  1. Do not introduce new taxes and fees. We are specifically discussing the imposition of an additional tax on imports, or the purchase of foreign currency excluding a point increase in the duty on non-critical imports, after calculating the economic feasibility of such taxation.
  2. Do not increase benefits or lower taxes for businesses. Previous measures reduced the state budget significantly and had no positive effect on stimulating economic activity.
  3. Cancel benefits for businesses operating in the rear. It is recommended to return to standard taxation while also providing a mechanism for suspending economic activity in the event that it cannot be resumed.
  4. From January 1, the possibility of using the third tax group of 2% for retail trade enterprises will be canceled on the terms that were introduced from April 2022.
  5. Return the reduced standard rate of value added tax for fuel and excise tax.

In terms of state budget expenditures in 2022, the following were the largest:

  • 32.2% is allocated to defense,
  • 20.3% to social protection and social security,
  • 15.4% to public order and state security.

“Expenditures in the first half of 2022 totaled UAH 1 trillion 36.7 billion, or 48.9% of the year’s budget. General fund expenditures totaled UAH 973.3 billion, representing 78.6% of the plan for the reporting period and 52.3% of the plan for the year,” – Ilya Neskhodovskyi says.

Taking into account the current situation, the analyst recommends that work on optimizing state expenditures and reducing those that are not a priority in wartime conditions continue in the coming year.

“It makes sense to increase spending on “eSupport” programs that aim to stimulate and support economic activity. At the same time, he believes that funds should be directed toward enterprises that have temporarily ceased operations rather than start-ups that face a high risk of failure. It is also worth forecasting an increase in the amount of assistance provided to IDPs and ensuring the consistency of these payments.”

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