On 2 April 2020, the law of Ukraine “On Amendments to Some Legislative Acts, that Aim to Provide Additional Social and Economic Guaranties due to the Spread of Coronavirus Disease (COVID-2019)” (№ 540-IX) was adopted.
Experts from the Regional Offices of the U-LEAD with Europe Programme analysed the provisions of the new law and their influence on the work of local self-government bodies and local budgets.
Thus, according to the law № 540-ІХ amendments to 8 Codes of Ukraine were added – Tax, Administrative, Civil, Code on labor laws of Ukraine, Code of administrative legal proceedings of Ukraine and 3 procedure Codes. Besides, changes were made to 27 laws of Ukraine. Most of the changes directly or indirectly influence local self-governanment bodies and can have influence on hromadas’ budgets. According to advisors from Regional Offices of the U-LEAD with Europe Programme, local self-government should pay attention to the following changes:
І. REGARDING THE CHANGES TO THE TAX CODE OF UKRAINE
1.1. Changes on local taxes:
From April 1 the payments for land, that belongs or is rented by either physical or legal entities and is used for business, is paid on general conditions, and starting from April the term for “tax vacation” regarding the payment for land, that were introduced by Law № 533-IX, were reduced.
Іnformative: previous changes to the Tax Code of Ukraine (Law № 533-IX) suggested to provide “tax vacation” for the period of March 1st to April 30th, 2020 for physical and legal entities regarding the payments for land, that either belongs to them or is rented and is used for business purposes. The same benefits are not offered to citizens.
To implement the above-mentioned norm, land users have the right to submit the clarifying tax declaration to the tax service by the place of registration. Please note, that submission of the clarifying declaration is the right but not the duty of taxpayers. This aspect should be taken into account by local self-govrnment bodies while calculating the possible losses of local budget.
Consequently, the “tax vacation” for taxpayers was reduced to 1 month – from 01 to 31 March 2020.
If payers for land have already used the provisions from the Law № 533-ІХ and have already submitted the clarifying declaration to the tax office regarding the change of tax obligations, they must submit a new clarifying declaration regarding the land payment not later than April 30th 2020. However, penalties and fines are not applied by tax office.
The term for land payments for the period of 01 to 30 April 2020 is prolonged till 30 June 2020.
Same as with the land tax, from 1 April the term of “tax vacations” on property tax, for property that is used not for living, that was introduced by Law № 533-IX was reduced. Consequently, from 1 April the mentioned tax is paid to the local budgets in full amount.
Іnformative: previous changes to the Tax Code of Ukraine (Law № 533-IX) suggested from 01 March to 30 April 2020 the tax vacations for physical and legal entities on property tax, different from land, for the objects used not for living. This norm applies to all tax payers (physical and legal entities), however only in the part regarding the objects not used for living.
To implement the mentioned norm the owners of the property used not for living have a right to submit to the tax office by the registration address the clarifying tax declaration. This aspect should be considered by the local self-government bodies when calculating the possible losses of the local budgets.
Consequently, the term for “tax vacations” on property tax for the objects of not-for-living facilities was reduced to 1 month – from 01 to 31 March 2020.
For those taxpayers, who have already used their right to submit a clarifying tax declaration, it is necessary till 30 April 2020 to submit a new clarifying tax declaration. This is done with the aim to correct the amount of the calculated tax.
Physical entities for recalculation don’t need to address the tax office – the recalculation of the financial responsibilities will be conducted next year.
Recommendations for LSG: According to the estimations of the experts from “U-LEAD with Europe” program, based on the incomes from previous years, losses of the local budgets, that have direct extrabudgetary relations with the state budget, from “tax vacations” for land payments and property tax is predicted in average around 3-5% of income from the general fund and vary depending on the tax margins, that are set by LSG and amount of the normative monetary estimation of land. Also, it is necessary to consider, that the budgetary losses from land payments and property tax from legal entities will influence the local budgets in the current year, and from property tax from physical entities - in 2021.
Also LSG should improve the informative work among the tax payers, who continued their business activity during the quarantine and underline the importance of payments for land and property tax of objects with a not for living purpose to be transferred by them to the local budgets for March 2020, as in the circumstances of emergency and quarantine activities the load on income and expenditure part of the local budgets reasonably increased.
Law №540-ІХ in 2020 states, that LSG receive the right to make changes to the adopted decisions of local taxes and payments regarding the review of single tax in the part of its reduction. Consequently, the legislative requirements regarding the regulatory policy towards such reduction of the single tax is not applied.
It is necessary to remind, that LSG can set the rates of the single tax for tax payers, who have chosen a simplified taxation system, and belong to the first or second group of tax payers. These are physical individual-entrepreneurs, who are conducting trade activities on certain territories (for example, agricultural markets) or are providing services in the field of public services or public catering. These rates are established with the use of regulatory procedures on the following level:
- for the first group – within the range of up to 10 percent from the minimum cost of living, set for 1 January of the taxation year.
- for the second group – within the range of up to 20 percent from the minimum wage, set on 1 January of the taxation year.
It is important to mention, that the reduced rates of the single tax will be effective till the end of 2020 and are not to be renewed.
Іnformative: Regarding the introduction of other loss compensators for enterprises it is necessary to mention, that according to the Law № 533-ІХ physical individuals entrepreneurs, members of farm businesses and individuals, who are freelancers (scientific, art, medical and legal practice, notary activities) have received a possibility not to pay for themselves a single social payment for the period of 01 March to 30 April 2020.
Besides, from April 2020 was raised the margined amount of income, that allows to use a simplified tax system:
- for the first group from 300 thousand hryvnas to 1 million hryvnas;
- for the second group from 1,5 million hryvnas to 5 million hryvnas;
- for the third group from 5 million hryvnas to 7 million hryvnas.
This norm can have an indirect positive influence on the local budget in the future through the creation of favourable business climate, reduction of load on tax payers and the increased number of tax payers using the simplified tax system.
Recommendations for LSG: The norm regarding the review of the rates for single tax is not a necessary norm to be used and allows LSG to independently decide whether it is necessary to reduce the rates of the single tax and for what activities. LSG should be very rational with this decision, estimating the potential consequences of such decisions for the loss of income for local budgets in the shorter and longer perspective. At the same time, the interests of the local entrepreneurs should be considered and try to minimize the negative consequences for them during the restrictive measures.
1.2. Changes, regarding the national tax and payments:
Changes were made to the Tax Code of Ukraine regarding the peculiarities of the set tax income of the hired staff based on the annual declaration with the aim to implement a tax on personal income (Subsection 1 Section ХХ Transitional provisions of Tax Code of Ukraine). Also, the list of expenditures was widen, that should be added to the tax discount for individuals – hired staff and cancel the limit on the amount of charity, including the communal entities of healthcare in the form of protective items, medication and medical equipment, that are necessary for prevention and treatment of coronavirus disease (COVID-19).
Іnformative: The tax discount gives a right to reduce the annual taxed income of citizens – hired staff with the aim to get personal income tax. As a result of an annual declaration the citizen will get back half or the full amount of the paid personal income tax for the year of 2020 (but the amount cannot exceed the amount of the paid personal income tax during 2020 from the income in the form of salary) .
We believe, that this will improve the amounts of charity aid towards healthcare. However, in 2021 this can cause the reduction of personal income tax amounts to the local budgets by the registration address in the result of increase of such amounts of the return of this tax, who plan on receiving such tax discount.
Changes are made to the Tax Code of Ukraine, which allows temporal, for the period of quarantine, set by the Cabinet of Ministers of Ukraine on all territory of Ukraine, release from VAT regarding the entrance and other delivery activities on the customs territory of Ukraine of items, medical items and/or medical equipment that are necessary to prevent the emergence and spread, localization and liquidation of instances, epidemics and pandemics of coronavirus disease (COVID-19) and temporary ban to define the amount of operations in the form of charity aid to register the respective organizations by VAT payer (Subsection 2 Section ХХ Transitional Provisions of Tax Code of Ukraine).
As a result of this amendment, there is a possibility to reduce the expenditures of non-communal non-commercial enterprises, that belong to hromadas, to get the respective medical goods.
According to the changes to Tax Code of Ukraine, for the period of quarantine:
- ban all fines for breaking the tax legislation, committed for the period of 1 March to 31 May 2020, except for certain violations, including the violations in production and realization of the excise goods, regarding VAT, excise tax and rent payments, etc.
The changes are directed to support the business entities, protecting them from fines or penalties in the time of hardship, caused by the temporal pause in their business activities. Also, a minor negative influence on local budgets is possible due to the temporal worsening of the tax paying situation and the general situation with budgets during this period.
Recommendations for LSG: to consider the necessity to balance out the national budget, research the possibility to limit the most important and prioritized expenditures, adding changes to the monthly budget activities, considering a change in payment deadlines and losses of the local budgets and to have a conversation with the tax payers regarding the necessity to pay all the taxes to the local budgets in a timely manner and in a full amount.
To consider the influence of certain legislative changes when preparing any predicted calculations to the budget draft for the year of 2020.
ІІ. REGARDING THE SUPPORT OF CERTAIN CATEGORIES OF WORKERS
For the period of fight with coronavirus and up to the time of its ending, medical staff and other personnel, who are involved in providing medical services to patients with coronavirus, were established additional to the set by legislation payments towards the salary in the amount of up to 300 percent from the initial salary.
Іnformative: previous changes to Tax Code of Ukraine were suggesting the additional payment in the amount of 200 percent from the initial salary.
By the resolution of the Cabinet of Ministers of Ukraine №246 from 23.03.2020 it is suggested, that the source for such additional payment are funds of the State Budget, National Healthcare Agency of Ukraine and local budgets. Consequently:
The social workers, who are providing services to people by their registration address, meaning at their homes, should receive additional payments to the ones already set by the legislation salaries in the amount of 100 percent of their salaries for the period of activities, aimed to prevent the emergence, spread, localization and liquidation of instances, epidemics and pandemics of coronavirus disease (COVID-19).
ІІІ. REGARDING THE CHANGES TO OTHER NORMATIVE ACTS
For the period of quarantine the LSG have a right to have sessions of local councils, sessions of the executive village committees, village, settlement, city councils, permanent deputy commissions in the format of video and audio conference (remote meetings), except for questions, that require a secret vote. Please note, that to have online meetings in the format of video and audio conference according to the appropriate regulations of the council should necessarily have a norm about the possibility of having remote meetings, in other cases the order of such meetings is decided by the head or the person, who is fulfilling the responsibilities of a head, establishing an order of the council’s organization, its permanent commissions and its executive committee in the remote mode. Also, the following must be provided:
- the possibility to realize for the local councils’ deputies and members of the executive committee their rights;
- identity identification of the person, who participates in the meeting of a collegial body;
- establish results and recording of the results regarding each question.
Remote meetings have to necessarily be recorded, as the recording is an integral part of the protocol.
Informative: Deputies, members of the executive committee, hromada population have to be notified about the remote meeting 24 hours before its start. An important condition is to make public a decision about the remote meeting on the official website of the council with the simultaneous delivery of this information and the act drafts with the relative documents to the official email address of each member of the collegial body.
Also, it should be mentioned, that the list of questions, that can be discussed during the remote meeting, is strictly defined. This is a question of immediate changes to the local budget, questions regarding the immediate liquidation work and the consequences of emergency situations or immediate liquidation of especially complicated emergency situations, caused by the instances of epidemics and pandemics or by the realization of responsibilities, connected with such circumstances and procedural questions. The drafts of such resolutions, decisions of LSG and its representatives, who will be participating in remote meetings, will not undergo the regulatory procedures and will not be subjected to the requirement of compulsory publicity of the information 20 days before the meeting.
Informative: the mentioned changes allow the hired staff (upon the owner’s decision) to fulfill his/her responsibilities remotely without any changes into the working hours or salary. The establishment of such labor regime under the condition of quarantine, does not require a two-month notice regarding the changes of work conditions.
Recommendations for LSG: LSG should establish clear rules regarding the work conditions and work hours for the period of quarantine; analyze the possible losses of the local budget due to the loss of personal income tax; to define the sources-compensators of the income losses; to review the expenditure part of the local budget, considering the reduction of the income part; work out the activities regarding the saving of budget funds; to organize an information campaign regarding the changes to the legislation among various businesses.
Informative: There is still an ongoing discussion regarding the project drafts of local councils on setting the amount for local tax and payments for the year of 2021. So, the possibility to realize the rights of citizens, to work out regulatory act drafts, participation in the open discussions, connected with the regulatory activity, is rather important for today.
Recommendation: LSG should consider the changes to the norms of the Law and to initiate public discussions regarding the decisions on setting local taxes and other payments for the year of 2021 with the use of online instruments.
Besides, art. 471 introduces a new type of aid – the aid on partial unemployment for the period of quarantine.
Please note, that partial unemployment aid is provided to all ensured individuals (except for those, who receive pension) if they lost part of their salary due to the forced shortage of working hours because the production was either stopped or paused in the result of quarantine. The important requirement is for the employer to request the receipt of the aid for this type of work for their staff. The amount of this aid is provided for small and medium-sized businesses for the whole period of quarantine.
Informative. The partial unemployment aid is not provided if the employer has debts regarding the timely salary payment to their staff and to the Unified Social Contribution fund, that occurred for the period of five previous years.
To receive the aid on partial unemployment the employer should address the Fund of Compulsory State Social Insurance of Ukraine by the place of registration and to submit the following documents:
Please note, that the employer can address to receive these funds for their staff for the period of 30 calendar days from the day when the work process was stopped.
Informative: aid on partial unemployment for the period of quarantine is calculated for every reduced hour from a full working day out of two third of the base wage, set for the workers based on their professional experience, but not higher than the minimal wage, set by the law. The payments are done by the employer starting from the first day of the shortage of the working day and by the funds of the fund within the period with no work but not longer than the time of quarantine.
Changes of the final and transitional provisions of the Law (Section XI) state, that for the time of quarantine:
Recommendation for LSG: these changes to the Law of Ukraine “On populations’ employment” can be used by LSG to support small and medium-sized business in the time of quarantine.
Changes to the Civil Code of Ukraine during the quarantine prolonged the terms of legal claims. It is mainly regarding the claims, described in the articles 258, 326, 559, 681, 728 and 786 of the Code;
Besides, for the period of quarantine it is prohibited to raise the interest rates on the taken credits. This norm is stated in the Law of Ukraine “On banks and banking activity” (part 9 Section VII Final provisions);
Also, for the period of quarantine an individual can be released from the rent payment, if this property cannot be used in the time of quarantine (subparagraph 14 final and transitional provisions, subparagraph 6 article 762).
Please note, that if the property is partly used – the release from rent is not applied.
Recommendation for LSG: LSG should pay attention and consider in their work: the increase in terms for legal claims; communal enterprises, that have bank credits, to control that the interest rate is not increasing; to analyze the percent of losses for local budget from the property rent, that during the time of quarantine will not be used.
Informative: the representative of medium-sized business is considered a taxpayer of any property ownership right, whose average number of workers for the reporting period is from 50 to 250 people and the annual profit regardless of the business activity is equivalent from 10 to 50 million euros, according to the National Bank of Ukraine exchange rate; the representatives of large business is a tax payer of a various property ownership form, whose average number of workers for the reporting year does not exceed 250 people and the annual income from various activity does not exceed the equivalent of 50 million euros, set by the national Bank of Ukraine exchange rate.
Recommendation for LSG: LSG, that have communal enterprises, that can be considered as medium-sized or large enterprises, should pay attention to the above-mentioned norm of the law.
At the moment, these are all the main changes to the legislation, that we wanted to inform you about. For a detailed consultation and in case of additional questions regarding the use of above-mentioned norms, please address your regional offices of U-LEAD with Europe Programme in your oblast.
The materials are prepared on the results of the analysis of the Law of Ukraine “On changes to some legislative acts of Ukraine”, aimed to provide additional social and economic guaranties due to the spread of coronavirus disease (COVID-19)” № 540-IX from 30 March 2020 by advisors on municipal finance and management of regional offices of U-LEAD with Europe Programme under the supervision of Yuliia Sybirianska, fiscal policy advisor of the U-LEAD with Europe Programme:
This publication reflects the opinion of its authors and may not reflect the official position of the U-LEAD with Europe Programme, aimed to empower hromadas on the local level.
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