The problems are in minds rather than in taxation policy

On October 16, the Verkhovna Rada passed the president’s amendments to the Law “On Government Promotion of Software Industry.” The document defines the guidelines for the development of the national IT sector as one of the state’s key priorities. A total of 225 MPs voted “for.” The law goes into effect from the moment of its publication.

The Law defines the key areas of government support for the national IT industry. In particular, the improvement of tax legislation, implementation of permanent monitoring of the industry, and promotion of effective interaction between the industry’s operators and the authorities. This draft outlines general principles by which the IT industry operates, while draft No. 9744 does the same for special tax rates for such enterprises, the operation of the register of companies with benefits, and so on. As a reminder: the president’s chief objection to draft No. 8267 was that the proposed special scheme of single social security contribution (SSC) for one industry was unconstitutional and would thus result in the deficiency of six million hryvnias in the Pension Fund’s budget. This objection was taken into account. The final version of the law does not include the provision about SSC rate for IT staff of two minimum wages, either.

However, the authors of the draft do not despair. The vote can be considered as the start of positive changes for the industry, and thus for national economy as a whole. “I am convinced that the focus on IT will enable Ukraine not only to catch up with Europe’s developed nations, but even assume a policy of overtaking them. This is one of the most progressive sectors of global economy, and today Ukraine has got a chance to fight for leadership in the international arena,” said MP Viktor Yanukovych Jr.

According to him, the work on creating maximally comfortable conditions for the development of national IT industry will be continued after the election: “After the elections, we are going to propose amendments to the tax code and the law on single social security contribution in order to restore the norms which will enable Ukraine’s IT sector to successfully compete worldwide. In particular, I mean the five percent income tax per employee and the single social security contribution, calculated as standard rates of two minimum wages. Besides, we will propose to lift the VAT off not only the ready product, but also cancel it on each stage of the product’s development. Only yesterday, the Council on Competitiveness of Ukrainian ICT Industry and the Tax Administration of Ukraine signed a memorandum on cooperation, so we have virtually reached understanding in this sphere,” commented Yanukovych Jr.

As a reminder: early in July this year, MPs agreed to accept the president’s amendments to draft law No. 9744. The major changes concern the procedure of the VAT cancelation, five percent income tax on natural persons, and the cancelation of obligatory conclusion on operation, which companies must obtain from the State Agency on Science, Innovation, and Information Technology. At the end of July this law was signed by the president. So the remaining preferences include the cancelation of the VAT and the five percent profit tax for enterprises starting from 2013. Before that, on May 24, the Verkhovna Rada voted for both draft laws introducing a special tax mode for Ukraine’s IT companies.

Remarkably, IT companies themselves are so far very cautious in their evaluation of the proposed amendments to the legislation. A top manager of one of the leading IT operators in the Ukrainian market shared with The Day off record that he had great doubts as to the effectiveness of the newly passed law. “The lawyers say that it is a dummy law,” said The Day’s source.

Instead, when asked what real tools the management of IT companies would like to see implemented in the law, he gave a predictable answer: “Those tax benefits we were promised long ago.” But is this desired tool effective, and will it solve the main dilemma of Ukraine’s IT market: a shift to outsourcing and absence of reliable IT product sector? In his interview to The Day, Ihor Lysytsky, head of the Council on Competitiveness of Ukrainian ICT Industry, stressed that the problem was in minds rather than in taxation policy.