The Cabinet of Ministers wants to exempt high-tech companies from paying taxes. Deputy Prime Minister and Social Policy Minister Serhii Tihipko told a meeting of the task force in charge of drawing up a law on creating favorable conditions for the development of high industries, that the Cabinet thinks it reasonable to grant high-tech companies an exemption from paying the profit tax, the individual income tax, and the single social contribution.
Tihipko emphasized that players on the national high-technology market have repeatedly said that salaries and related expenses accounted for 80 percent of all their primary costs, and that the sector cannot possibly develop under the current tax burden. Companies that are unable to shoulder such a heavy tax load either fold up their business in Ukraine or evade taxes. This then results in a budgetary shortfall. “To prevent this, and retain this country’s intellects, we must encourage the development of IT technologies, as it is done throughout the world,” Tihipko noted.
Naturally, businessmen have approved the governmental initiative. “This is a grand gesture from the state,” Ivan Petukhov, president of the company Adamant, vice-president of the Ukrainian Union of Manufactures and Businessmen, and head of its Commission for Research and IT technologies, told The Day. “Yet it is important to understand the reason why this is being done. If the state wants to pursue a certain strategic course, it is one thing. But if it is about the development of the IT industry as a whole, exempting all the companies that work on this market from taxes will produce no good results.”
For, as managers of national IT companies told The Day, in reality, tax privileges are by no means the first thing that business would like to get from the government. They say that there are at least two more problems slowing down the development of the sector, and that need to be solved. The first is an ambiguous definition of software in the taxation law, and the second is the specifics of hard-currency regulation. “Ukrainian developers, who produce and sell their creations via special international websites, cannot receive money for their products in Ukraine. There are many obstacles which nobody wants to deal with. So the developers receive this money outside Ukraine,” Microsoft Ukraine general manager Dmytro Shymkiv told The Day.
For example, due to the rather unfavorable law, aside taxation difficulties, the Ukrainian companies that deal in software outsourcing receive payment for their services via accounts opened in other countries, several experts told The Day. Besides, they emphasize, the staff of these companies also get their salaries through other countries. “Thus, Ukraine reaps no revenues,” Shymkiv says.
According to official statistics, the IT-capital “outflow” mentioned by Volodymyr Semynozhenko, head of the State Committee for Science, Innovation and Information Support, involves some 60 to 70 percent of Ukrainian production finding itself in the “gray” market, while 90 percent of the remaining legal Ukrainian software developers work for foreign companies. “There is a paradoxical situation in Ukraine now: our programmers execute orders from abroad, but when there is a ‘domestic’ need to make an informational product, it is usually done by foreign companies,” Shymkiv noted. “Moreover, IT specialists are very mobile, and they often find it better to move to another country, where working conditions are more favorable than here.”
Shymkiv is convinced that for this reason the governmental initiative should not be regarded as an introduction of exemptions. “This is in fact an opportunity to create a stimulus for the IT industry and to enable it to become legal,” he said in a comment to The Day. And in the opinion of Petukhov, after exempting IT companies from taxes, the government should “force them to channel this money into the concrete fields determined by the state.” The expert is sure this will only be possible if the aforesaid initiative is backed by a state-sponsored program. Petukhov insists that only the latter will be able to prevent “imbalances” on the market, and so that “the government does not blame business for misusing the privileges.”
Petukhov emphasizes that the public should be actively involved in the development of a state program.
“By encouraging professional self-regulating organizations to work on the contents of a long-term plan and the monitoring of its fulfillment, the state may be sure that all the goals will be set correctly and brought into line with the current European mechanisms which we have long been studying and trying to use in this country,” the expert says confidently.
“One must form a powerful sectoral association that will lobby the sector’s interests inside the country and advancing Ukrainian technologies abroad,” Shumkiv says in support of his colleague.
Many countries have not only created special tax conditions for the IT sector, but have also set up an appropriate infrastructure, including technoparks. Such measures help the companies benefitting from them develop, whilst also helping the state increase its investment attractiveness. “In Australia companies that conduct research and development can be granted such privileges as a deduction of at least 125 percent of R&D expenses from their profit, while small-scale businesses can be also given tax holidays,” Shymkiv says, referring to international practices. In his view, Ukraine could also reap benefits from the experience of Ireland in pursuing an effective IT infrastructure building policy. “Dublin has become a European Silicon Valley — where the headquarters of the world’s largest companies as well as their production facilities are located,” Shymkiv says.
