Ukrainian authorities have returned to the idea of imposing restrictions on the parcels from abroad. Ukrainians make purchases in foreign online stores, mainly Chinese, where goods (clothes, shoes, gadgets) are cheaper than in Ukraine. Ukrainian Ministry of Finance proposes to establish a limit on tax-free parcels in the amount of 22 euros (720 UAH). This may increase the cost of international purchases for Ukrainians by 30%, negatively influence the postal services, and market participants in general.
How postal parcels to be changed
The number of Ukrainians who order goods from foreign Internet sites is growing every year. According to market participants, 35 million parcels are sent annually: most of the goods cost less than 150 euros since they are not subject to tax and customs payments. Trade with Chinese online stores accounts for about 30% and another 70% for the EU and the USA, said Viacheslav Lysenko, a shareholder of Meest China postal operator. Ukrainians mainly buy clothes, shoes, children's products, and gadgets from China.
Ukrainian authorities want to lower the threshold of tax-free parcels, and this is not their first attempt. A few years ago, Ukrainian retailers who sell electronics, sought to reduce the non-taxable limit from 150 to 22 euros for international shipments. In 2017, Law No. 2245-VIII “On Amendments to the Tax Code of Ukraine and some legislative acts regarding the balance of budget revenues in 2018” was passed, which prescribed new taxation principle from January 1, 2019. It provides for restrictions on the number of international shipments that can be sent to individuals without taxation (up to three during the month), the limit of their invoice cost should be up to 150 euros. The authorities claim that this measure was taken to fight the corruption schemes of the shadow market.
There are plenty of cases when illegal importers use the legislative loophole and divide big batches into small parcels. Recently a batch of mobile phones was detained in Volyn region (western Ukraine, one of the postal operators was transporting the batch without paying customs duties. It was a commercial lot for sale, MP, head of the parliamentary subcommittee on the legal support of tax authorities Maksym Kuriachy said.
“After the adoption of the law, the Ministry of Finance and the State Fiscal Service were instructed to develop a procedure, a special methodology for the implementation of the law. As of today, nothing has been done,” Maksym Kuriachy added.
State Fiscal Service has confirmed that the Ministry of Finance was the initiator of the idea of reducing the tax-free limit of parcels up to 22 euros.
Ukraine has no tools to track these three parcels, prescribed by the law, says Ihor Smilyansky, Ukrposhta CEO (Ukrainian state postal service). The share of Ukrposhta in international shipments to Ukraine is 70%, Ukrposhta does not have a monopoly on international transportation. If two parcels were delivered by Ukrposhta, and two or more went through another postal operator, how to trace all the parcels and calculate the tax?
“My personal opinion is if Ukraine still has not managed to overcome smuggling in the segment of goods from 150 euros, the question about 22 euros seems to be ridiculous,” Ukrposhta CEO added.
Bought a coat? Pay the tax!
If the tax-free limit on the purchase of goods from abroad will be reduced to 22 euros, the cost of purchases from foreign online stores for Ukrainians can grow by an average of 30%, Viacheslav Lysenko states: “This 30 % include 20% VAT and 5-10% duty.”
“For instance, I want to order a coat on Aliexpress for 107 USD, I will have to pay another 32 USD for it. Or for example, a student wants to send a gift for his mother from abroad, the cost of the gist is 36 USD, and he can send it to Ukraine only if he pays 11 USD taxes,” Lysenko says.
"With a tax-free import limit decrease, deliveries from the US and Europe will drop significantly. Ukrainians would stop buying goods from EU and the US because the cost of such goods will increase by 20-30% due to taxes,” representatives of Nova Poshta, Ukraine’s delivery service, assure.
Legislative changes are lobbied by the largest retailers who thus want to eliminate competition, market participants are sure. “Reducing the limit to 22 euros is beneficial primarily to the largest retailers: they are trying to eliminate the competition. For comparison, in China, a pair of high-quality footwear costs around 40 USD. Large retailers buy it for $ 25, and in Ukraine, they sell this very product already for 120-150 dollars and get huge profits,” Lysenko claims. The initiative would enrich individual companies that sell goods in Ukraine at exorbitant prices.
If this legislation is adopted, the flow of parcels from abroad might stop at all. More and more parcels need to be checked; it means that more customs officers will need to be involved, more mail service employees. Thus, the costs will increase significantly, and the number of parcels will decrease, says Ihor Smilyansky.
This initiative might case a real collapse at customs and, as a result, the suspension of almost all online commerce in Ukraine with foreign sites, Lysenko agrees. He also notes that lowering the limit would cause many controversial situations. The initiative will also hit the postal operators. Market participants point out that as a result of a reduction in the number of orders on foreign Internet sites and a reduction in the number of parcels, postal services, which earn money on delivery, on cooperation with other mail, will also suffer losses. In particular, speaking about Ukrposhta’s revenue structure, international transportation accounts for 20-25% - about 35 million USD per year, the company CEO said. According to him, after reducing the limit on international parcels to 22 euros in Belarus, budget revenues of the country have dropped sharply.
Will Ukrainian authorities approve the initiative?
Market participants assure that the bill on reduction the limit of parcels to 22 euros has been considered by the Ministry working group on October 25.
October 31, the bill was submitted to the government, but it was not approved and sent for revision, Maksym Kuriachy said: “That is why there is no bill as such, there are only proposals of some officials.”
Viacheslav Lysenko does not exclude that they will try to extend the initiative in the package of the budget amendments. It is possible that the parliament and the government will prepare such a sophisticated Christmas present to the Ukrainians.
Read the original text at 112.ua.