Food and apartments will rise in price: Myths and reality of new controversial bill

Author : Anna Peshkova

Source : 112 Ukraine

In the first reading, the bill 5600 by the Prime Minister has already been voted on, which caused a lot of noise in expert circles. Developers are confident that due to the new law, housing may rise in price
23:32, 5 July 2021


Under the pretext of fighting the oligarchs and the need to fill the state budget, "Servants of the people", former libertarians, are promoting new legislation, many of which more affect ordinary citizens than oligarchs.

In the first reading, the bill 5600 by the Prime Minister has already been voted on, which caused a lot of noise in expert circles. Developers are confident that due to the new law, housing may rise in price. It is also highly likely that if the law is adopted, Ukrainians will hastily sell their land shares, and will also feel the rise in prices for food.

What will happen to property prices?

In the year of the pandemic, half as many apartments were commissioned, and the purchasing power of citizens fell. As a result, already in 2021, market prices have risen by 25-30%. Now the value of real estate may rise by the same amount due to changes in taxation, developers warn.

When buying an apartment in a new building for the first time, you pay value added tax, which is usually already included in the cost of the apartment. The exception is real estate under the Affordable Housing program from the state. But, if you decide to sell your property, neither you nor the subsequent buyer will need to pay VAT anymore. It is this privilege that the Ministry of Finance proposes to cancel.

It is not surprising that Ukrainians were worried about the possibility of a one-time rise in housing prices in the secondary market by 20%. But value added tax is paid only by legal entities. Thus, only those apartments that were purchased by reseller companies from developers or ordinary citizens will rise in price by 20%. So for an ordinary Ukrainian, the prices of "secondary housing", if you buy from an individual, in theory, will not change. They will not change if they are not raised artificially under the influence of legal entities-resellers.

It is also clearly spelled out that the tax will not be levied on affordable housing issued under the state program.

Everything is clear with outbid legal entities. The second rule mainly concerns individuals whose business is associated with the purchase and sale of housing. The authorities will also deal a tax blow to them.

Now, if Ukrainians sell more than one apartment per year, then the second, third and each subsequent housing is subject to 7.5% (personal income tax, military tax and state duty). The bill proposes that the third and subsequent real estate objects should be taxed for a total of 20.5%.

In fact, this is a tax on wealth, because it is difficult to imagine that an ordinary Ukrainian would sell three apartments a year. The innovation will be disadvantageous, first of all, for those who make money by buying apartments on the foundation: investing money during the construction phase, acquiring several apartments and then reselling them or renting them out.

Taking into account that every fifth apartment in a new building is purchased for further resale, the demand of speculators will decrease. But just for the time being, until prices rise.

Developers insist that the effect for the buyer in any case will be negative - if not in terms of cost, then at least in terms of the timing of projects. Developers are interested in the money of system investors, that is, outbidding, and assume that after the adoption of the bill they will not have enough funds for the construction of facilities. The search for new investors will be delayed, which means that the construction time will also increase. Protracted and unfinished construction projects, bankruptcy of construction companies are possible. In general, such a "stagnation" in the construction market will not have the best effect on the Ukrainian economy, because the production of industries related to construction will also suffer, and the number of jobs will be reduced.

If we talk about international experience, then, according to the EU Council Directive 2006/112 / EC of November 28, 2006, in the EU countries the secondary market is exempt from VAT. That is, the new norm contradicts the European course.

Land shares - not for free

In terms of land taxation, things are not so smooth. The legislators decided that free agricultural land should not be idle. Based on the explanatory note to the bill, one-fifth of all taxes under the new reform can be provided by farmers and landowners. This is almost 2.5 times more than the state will receive by changing the model of rent, for the sake of which the document was submitted to the Rada. Moreover, together with the farmers, those citizens who are far from the agrarian sphere will also indirectly suffer.

A "minimum tax liability" is established - a certain general indicator, consisting of individual taxes. It will be variable.

Ukrainians, whose plots exceed 0.5 hectares, among other taxes, each year will give the budget 5% of the normative monetary value of the land, regardless of whether they process their share or not. Even if you own a large vegetable garden, you must pay tax. In such a simple way, after 20 years, the state will reimburse the value of the land, which was once transferred as conditionally free in the form of shares.

Farmers will also be affected directly. Now, according to the Tax Code, Ukrainians who grow and sell crops from their shares and plots of up to 2 hectares are not required to declare their profit. This threshold is reduced to the very same 0.5 hectares. All farmers, whose plots are more than 5 acres, will have to pay tax on income from the sale of products.

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If you have a large vegetable garden where you grow cucumbers and tomatoes, please pay taxes.

You can reduce the minimum tax by paying other taxes and fees. However, not all farmers will be able to do this, especially those who do not lease their shares. Mainly small farmers will suffer, while medium and large producers of agricultural products will hardly experience any changes.

The Main Scientific and Expert Directorate of the Verkhovna Rada condemned this initiative and recalled that "a private peasant farm is an economic activity without creating a legal entity in order to satisfy personal needs by producing agricultural products, selling its surplus, and providing services."

"The proposal is not fully consistent with the principles of social justice - the establishment of taxes and fees in accordance with the paying capacity of taxpayers and tax neutrality - the establishment of taxes and fees in a way that does not affect the increase or decrease in the competitiveness of the taxpayer," the department noted.

If the law is adopted in the second reading, it will come into force in September. That is, immediately after the land market starts working in July. Many landowners will simply have to sell their plots. And not in a few years, when the land will rise in price after the opening of the market, but now, at its very start, for a penny. An alternative for many will be the sublease of plots, because the "minimum tax liability" will be shared among all tenants. If you lease a plot to agricultural holdings, the amount of taxes paid from the share will overlap the minimum.

Expensive food

All these innovations will affect the cost of agricultural products. In addition, those who are engaged in poultry breeding are planning to transfer from the fourth group of private entrepreneurs to the general taxation system. That is, they will pay taxes not to local budgets, but to the treasury. This does not correlate too much with decentralization. And most importantly, according to experts' forecasts, a rise in the cost of meat by 30% and eggs - by 25% is possible.

And if, in addition to Law 5600, the law on oligarchs is also adopted, many farmers are likely to be taxed in full, like the rich. Then the prices for products may rise even more.

In addition to the rise in food prices, you should prepare for the rise in the cost of alcohol. The bill refers to a 5% increase in the excise tax rate on alcoholic beverages. And they want to tie the rate of excise tax on beer to the strength of the drink, and not to the displacement, which can lead to an increase in its cost. Cigarettes and mobile communications may also rise in price.

What else do the MPs note?

The bill contains a number of other controversial norms. For example, tax authorities can, if they wish, send a request for information to any company (now a motive is needed). After such requests, checks will logically follow. At the same time, another provision of the initiative introduces a ban on travel abroad for directors of small and medium-sized enterprises, if their companies have at least some tax debt.

Even if it is a fictitious debt, the director of the enterprise will be restricted to travel abroad. This means that the tax authorities will receive mechanisms for blackmailing business.

In addition, according to the initiative, the opportunity to appeal fines and sanctions in court before they are paid will be blocked. Whether the fine is fair or not, you must first pay it, and then prove your innocence in court. This gives rise to thoughts about the "plan" for fines.

The European Business Association, the Federation of Employers and a number of other non-governmental structures opposed changes to tax legislation. Experts are confident that the proposed changes are not supported by any economic calculations and are a chaotic set of various initiatives, which means they will not bring anything good to the economy.

It seems that the bill designed for deoligarchization will make life difficult for ordinary Ukrainians and ordinary enterprises. Despite this, 7 alternative bills, each of which softens the innovations of taxation in one of the areas, are still ignored.

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