Fiscal innovations of the new government

On September 10,2019, MPs voted in the first reading for the bills, which determine the rules for using cash registers (PPOs) by the business. These bills are aimed at combating tax evasion by large businesses using status of individual entrepreneurs (FOPs).  These bills provoked heated discussions. While discussing the draft at the Rada meeting, MPs spoke, on the one hand, about “draconian solutions” for small and medium-sized businesses, and on the other – about “cash register in a smartphone or tablet”. Representatives of small and medium-sized businesses have taken the proposed changes hostile and consider them an offensive to the business. In their view, the adoption of these bills could lead to the opposite result – intensifying the shadow processes.

The head of the tax policy committee of the Verkhovna Rada Danylo Getmantsev was the ideologist of the bills that significantly change the work of the FOP.

The draft laws, in particular, provide for:

  • introduction of programmatic cash registers (economic entities will be able to choose which cash registers to use: classical or programmatic);
  • simplification of the cash registers registration procedure (it will take place in the E-cabinet by obtaining a fiscal number that identifies the cash registers program);
  • cheaper process of cash registers application;
  • fiscalisation of transactions conducted through software cash registers on the fiscal server of the controlling body, which will allow to legalize settlement operations.
  • the bill introduces an electronic check.

The bill also provides for “control by the public on the legalization of settlement documents confirming the settlement operations”. It is a so-called cashback – compensation to buyers/consumers of 100% of the value of purchased goods, works or services, if they have filed a complaint about the seller’s violation of the established procedure for settlement transactions and during the inspection of the controlling body the existence of the violation was confirmed.

What would change for online stores, FOPs and customers?

Software cash registers is introduced. The text of the bill can be read so that it can be both devices and software (according to Getmantsev, the program has already been tested in the tax and it is ready to work), where data on settlement transactions are signed electronically. An entrepreneur can choose software cash registers or classic.

The concept of electronic check is introduced. It will have the same status as paper, but there are no technological requirements for it yet. Tax office in 2018 began a pilot project on e-receipt. There may be problems with online stores: an electronic check must be issued no later than the moment the goods are transferred. “Send the goods by mail – create an electronic check. If the goods have been returned to you: watch the buyer when he brings the goods to the mail. Payments on the basis of prepayment or partial payment, replacement of goods – developers are not interested in such trifles”.

Buyers will be able to report that they were not given a check or a check with violations, for which they are promised a “cashback”: a percentage of the fine that the entrepreneur will pay (100% of the price of the goods). The product should cost more than 100 UAH.

All individuals-entrepreneurs of 2-4 groups in the field of trade will have to use cash registers. But not immediately after the adoption of the bill. It should be noted that the norms of the law regulate trade, public catering, etc., that is, they relate to a situation where users buy goods and services from a business, in particular from a private entrepreneurial fund. In a situation where, for example, a legal entity purchases software development services from FOP, it does not affect.

All FOP 2-4 groups will have to use cash registers (traditional or software), regardless of turnover. For small FOPs, a grace period is established – from January 1 to December 31, 2020, FOPs with a turnover of up to 1 million per year may still not use PPOs. The exception is the “special groups” of the FOP, they must use the PPO in any case.

The main criticism of the bills is as follows:

  • Weak level of communication and discussion of draft laws with business at the preparatory stage.
  • Rush in adopting bills that led to the “dampness” of certain bills.
  • Unreasonable expectations for results. IMF experts concluded that the link between fiscalization and increased revenue collection has not been proven. they note that a noticeable effect is observed only if fiscalization is combined with a deep reform of the tax authorities – although then it is impossible to single out the influence of one of the factors.
  • Increasing the cost of doing business. The cost of fiscalization using virtual PPOs amounted to 7.6 thousand UAH per entrepreneur, or 8.5 billion UAH nationwide. Even if we assume that the obligation to keep records of goods will be canceled unambiguously (today this is a controversial issue, there is a legislative conflict that the tax authorities, of course, will interpret in their favor – they also need to “fill the budget”, fulfill the plan), the cost of fiscalization for FOP will still be measured in thousands, and for society as a whole, respectively, by billions of hryvnias per year of net losses. This figure takes into account only one side – direct costs. But it cannot take into account tax racketeering.
  • Increasing of shadow and migration trends. A huge part of the small business, which is already on the verge of profitability, will close, and Poland will receive another couple of hundred thousand migrants.
  • Increased government spending on the administration of proposed innovations. The state will have to pay a tidy sum to maintain an army of inspectors, not to mention data processing systems. The regulatory service has published the calculations about the implementation of the tax. The implementation of the new single tax administration system will require about 22-25 billion UAH. At the same time, the expected revenues from the expected violations will be only 2 billion. Business administration costs will be disproportionately more than the state will receive taxes.