The European Business Association (EBA) has spoken out against the bill on increasing the military tax and additional taxation of bank income, adopted by the Verkhovna Rada at first reading, and recommends making tax and customs reform a key priority for filling the state budget, the association said in a statement.

The EBA said the parliament recently supported the bill on increasing taxes No. 11416-d at first reading. This version proposes, in particular, increasing the military tax to 5% and additional taxation of bank income at a rate of up to 50%.

The association's experts actively participated in the dialogue between business, the government and the Verkhovna Rada and brought up for discussion alternatives to most of the proposed measures to fill the state budget by imposing an additional tax burden on business.

"Any additional taxation of compliant businesses, including the increase in military tax, could distort the competitive environment, as it would become economically disadvantageous to operate 'in the white.' Companies that remain in the shadow economy gain economic advantages compared to those that pay taxes. Accordingly, it can be assumed that this might push some compliant businesses into the shadow sector to survive during the war," the business association's experts said.

According to business, an effective fight against the shadow economy can provide a sustainable source of budget revenue and improve the economy.

EBA cited research data from the Institute of Socio-Economic Transformation, according to which the state budget is short about UAH 400 billion from the shadow sector. This amount corresponds to the amount of additional funds that are currently lacking in the state budget. In addition, an alternative to increasing the military tax, according to business, could be the accumulation of funds through the adoption of economic reservation, the association is confident.

The business association proposed considering additional taxation of gambling and the used car market, as well as the reduction of some government spending, as an alternative source of budget replenishment. Business supported the government's idea to abolish the limit on VAT exemption for goods up to EUR 150, which are sent in international express and postal items, and VAT imposition on all imported goods, except for personal belongings in accompanied and unaccompanied baggage.

Experts said that from the point of view of the IT industry, the proposal to increase taxes contradicts the idea of ​​​​creating the legal regime of Diia.City, according to which 25 years of unchanged tax conditions were recorded.

They believe that changing the conditions in Diia.City could lead to an increase in the cost of services and a loss of competitiveness in the global market, the potential exit of companies from this legal regime and even to investment relocation to other jurisdictions. According to EBA estimates, if the tax changes are introduced, this could lead to a decline in the IT industry by about 30% already in 2025, a reduction in the number of jobs, a decrease in foreign exchange earnings and tax revenues.

Commenting on the possible increase in the profit tax rate for banks, experts expressed the opinion that the fiscal effect of such a decision will be short-lived and will significantly reduce income from dividend payments by state-owned banks next year. Such a decision will lead to significant negative consequences for public finances.

In addition, the introduction of such an obligation is a retrospective alarming signal for all sectors of the economy, will highlight the riskiness of the regulatory environment and will reduce the desire to invest in Ukraine, the EBA emphasizes.

"A sharp change in fiscal policy could negatively impact the capitalization of banks and create a need for recapitalization. In the case of state banks, the need for recapitalization will entail additional expenditures from the state budget. Thus, the fiscal effect of this decision could be offset by many long-term negative consequences," the experts said.

However, the EBA drew attention to the fiscal potential of the shadow sector. "Among the managers of member companies surveyed by the ЕВА, 35% identify tax and customs reforms as key priorities. Recently, important legislative changes have been adopted to launch the reform of the Economic Security Bureau and the State Customs Service. At the same time, it is crucial that these reforms are not just 'on paper' but are fully implemented," the EBA said and expressed hope that the position of business will be taken into account.