August 29, on the first day of its work, Ukraine’s newly-elected parliament has elaborated two bills in the economic sphere, which have every chance either to change the country, becoming one of the points of the promise of President Volodymyr Zelensky about the “state in a Smartphone,” or cause a small business collapse and dissatisfaction of ordinary Ukrainians due to rising prices.
Laws on cash registers
I would like to talk about bills No. 1053-1 "On the application of registrars of settlement transactions in the field of trade, public catering, and services for the refinement of settlements in the field of trade and services" and No. 1073 "On amendments to the Tax Code of Ukraine regarding the detailing of settlements in the field of trade and services." Although both documents have already become the subject of discussion and criticism, both of them have already been adopted in the first reading on August 10 and are to be amended before the second vote.
In short, the essence of the two interconnected bills comes down to changes in the scope of accounting transactions registrars or, simply put, cash registers. The documents propose changing the rules for their application, expanding the scope of their application, adding to the list of software cash registers, which will allow the introduction of an electronic check and, at the same time, increasing the responsibility of entrepreneurs for violating the rules for using the cash registers.
The business was particularly dissatisfied with the norms, by which consumers would have the right to initiate an inspection of the seller. If the check proves the consumer is right, he has the right to get compensation at the expense of penalties imposed on the entrepreneur in the amount of 100% of the purchase. As a result, we get a mechanism of pressure on a small business due to the appeal of consumers to the fiscal authorities on the fact of possible violations in the calculations and legal grounds for tax authorities to conduct inspections.
In the case of confirmation of violation by the entrepreneur of the calculation procedure, he will be fined. The penalties proposed by the bill for such violations begin with 150% of the cost of goods sold with violation.
It is not surprising that some experts called the project the “law on informers”. The State Regulatory Service of Ukraine notes that such norms carry significant corruption risks, as these mechanisms might be used by fiscals, unscrupulous competitors, or buyers with a personal hostile attitude.
The authors of the bill themselves believe that in this way they make life easier for the entrepreneur by providing the right to choose a classic or software electronic cash register, simplifying the procedure for registering it, legalizing settlement transactions and increasing the level of consumer protection.
Electronic receipt for everyone?
One more point of bill No. 1053-1 is the introduction of an electronic check by installing clearing transaction registration software, which, being registered through an electronic account, will be able to transfer all the necessary documentation online. The consumer will be able to receive an electronic receipt.
Such an attractive idea was severely criticized by the State Regulatory Service of Ukraine, which stated that:
- the document does not contain a complete mechanism for consumer verification of the authenticity and reliability of settlement documents;
- the proposed control mechanism should involve creating a special user account, but it is created for the relationship between taxpayers and fiscals, that is, consumers do not have access there and therefore it is necessary to create a separate electronic service.
According to experts of the service with reference to the State Fiscal Service, 8 clearing transaction registration software models were registered in Ukraine, but this was done without checking the conformity of the proper documentation and reference samples. In addition, they are currently being used to create an electronic receipt, which is expected to be completed on December 31, 2019.
Finally, the introduction of an electronic receipt might encounter elementary technical problems with the availability of the Internet. For example, the Ministry of Digital Transformation promises to provide the territory of Ukraine with 3G and 4G connection with access to broadband Internet in all areas until 2023.
Cash registers for everyone
Another business complaint against bills is the "transition period" from January 1 to December 31, 2020, established for individuals-entrepreneurs (FLP) in a single tax group of 2-4 groups, whose income does not exceed 40,000 USD per year. They might not even use the clearing transaction registration software throughout the year. However, in fact, this cannot be called a concession, because today only groups with a turnover of up to 40,000 USD per year (with the exception of pharmacies, jewelry stores, household appliances, catering, tourism, and some others) might operate without a cash register.
Simply put, from 2021, all entrepreneurs whose turnover exceeds 12,000 USD (a restriction for the 1st group of single taxpayers) will be required to acquire settlement registrars.
Meanwhile, taking into account the devaluation of the hryvnia, the growth of consumer prices of 12,000 USD of turnover per year, for many Ukrainian entrepreneurs today is too small a sum to stimulate entrepreneurial activity, and when moving to the 2nd group, fiscal pressure also intensifies. So, if in 2014 at an exchange rate of 8 hryvnias per dollar and a demand for turnovers of 150 thousand UAH per year, the entrepreneur of the 1st single tax group received an income of 18,750 USD, today it is about 12,100 USD.
Finally, State Regulatory Service estimated that small businesses will have to spend 913 million USD on legislative initiatives, taking into account the need to pay the single tax, to purchase cash registers, conduct staff training, support of the cash registers service, etc. In such a situation, there is a great risk that the costs will be transferred to the consumer, or, more simply, consumer prices will rise.
When the cost of a mistake is too high
The small business itself perceives the bills as yet another offensive against the single tax system, introduced in 1998 and which made it possible to survive and gradually develop under simplified taxation.
“I remember that previously, the general taxation system required accounting for income and expenses, paying income taxes, and how to calculate them when trading operations were carried out for cash without documents? So there were “fixers,” who took some 50-100 USD and solved all the tax issues. The situation changed in 2018, the tax authorities have been trying to abolish the single tax, however, the situation looks the same," Serhiy, an entrepreneur from Kyiv, engaged in a pawnshop business, shares his experience.
According to him, the existing system has some drawbacks, the main of which is the complete dependence of the business on the State Fiscal Service and companies that deal with the program cash registers.
Fight with Shadow?
The bills also provide unshadowing of the cash flow. Actually, one of the constant reproaches of officials to small business is its use in large business schemes to minimize taxes.
Meanwhile, according to the results of a study by the Institute of Socio-Economic Transformation and the Center for Socio-Economic Research CASE-Ukraine, the total budget losses from using schemes with self-employed individuals, for example, registering a full-time employee as a private entrepreneur or lowering the turnover, are estimated at 250-390 million USD per year.
"It is incredibly difficult to take the business out of the shadow and easily drive it there. Every step that complicates the work of an entrepreneur or the buying process for a consumer scares the buyer away and forces the entrepreneur to look for other ways, simply put, if compliance with the law leads to losses for the business, it is very likely that he would simply go into the “shadow business,” Serhiy believes.