Taxation of online income through OLX, Rozetka and Prom: new rules of the game for digital business
30 April 16:23
ANALYSIS
The Cabinet of Ministers has approved a draft law amending the Tax Code and other laws to introduce an international automatic exchange of information on income received through digital platforms such as OLX, Prom and Rozetka.
This was announced by Deputy Chairman of the Tax Committee of the Verkhovna Rada Yaroslav Zheleznyak. According to him, the government made the relevant decision at a meeting on Tuesday, April 29.
According to the document, digital platforms will receive the status of tax agents and will be obliged to automatically withhold taxes from people who earn money by selling goods or providing services through these services. The tax rate will be 5%, with an additional 5% military duty. These rules will apply to both platforms registered in Ukraine and foreign ones if their services are used by Ukrainian residents.
The activities for which the seller receives remuneration through the platform include
- rental of real estate (residential, commercial, other, as well as parking spaces)
- provision of personal services
- sale of goods;
- vehicle rental.
For tax purposes, active sellers will be those who have made at least one payment transaction during the reporting period.
The tax authorities will have access to information on transactions on sellers’ accounts from banks, subject to the requirements of banking secrecy laws.
Taxes, war and the shadow economy: how Ukraine will look for money after Western aid is cut
While Ukraine is in the active phase of the war, its economy is operating at its limits. The budget deficit is measured in trillions, spending on the social sector and the army is growing, and Western partners are gradually demonstrating their willingness to reduce macro-financial support. The government is looking for new sources of revenue. One of the potential ways is to tax revenues generated through digital platforms.
Economist Oleg Pendzin told Kommersant Ukrainian in an exclusive commentary about what is happening to the country’s budget, why new tax initiatives may cause social discontent, and whether we should expect unpopular decisions to be made during the pre-election period.
Ukraine is currently operating with a huge budget deficit. According to the economist, the current budget balance looks threatening, to put it mildly.
“2.2 trillion hryvnias are revenues, while expenses reach almost 3.8 trillion. The difference is 1.6-1.7 trillion hryvnias,”
– Pendzin says.
According to him, the lion’s share of expenditures falls on the social sector: salaries for educators, doctors, civil servants, subsidies and pensions for security forces. This particular block “eats up” about UAH 1.7 trillion. But so far, the system has been able to survive thanks to external financial support.
“This year we will receive $40 billion in macro-financial assistance. But I have no illusions – as soon as the fighting moves to a ceasefire or a war freeze, the Europeans will start to curtail their assistance,”
– the expert warns.
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Reducing the army is impossible, but spending on it will not go away
After the active phase of the war is over, Ukraine will not be able to afford to reduce the size of the army. According to Pendzin, even with “security guarantees” from partners, the maintenance of the Armed Forces will remain a mandatory element of the budget. Penzin emphasizes that the Western contingent, even if deployed in Ukraine, will not exceed 20,000 troops, which is not enough to deter the aggressor.
Against the backdrop of the upcoming aid cut, the Cabinet of Ministers and Parliament are looking for resources within the country. The main target is the huge shadow sector.
“According to various estimates, 36-45% of the economy operates in the shadows. This is more than a trillion hryvnias annually that do not go to the budget,”
– Pendzin states.
We’re talking about income from unofficial rental housing, private medical and educational services, transportation, and online commerce – all of these categories of taxes are almost never paid.
Digital platforms as new “tax agents”
One of the draft laws that sparked a lively debate concerns the obligation of online platforms such as OLX, Prom, Uber , and others to automatically withhold taxes from users who receive income from rent, sales, or services.
“The MPs decided that since these services are used by millions of Ukrainians, they should become tax agents, i.e. collect taxes instead of the state,”
– the expert says.
According to Pendzyn, the biggest problem is the lack of clear criteria: how to distinguish an entrepreneur from an ordinary citizen who sells a used item once.
“In Europe, there are clear threshold amounts – say, 5 thousand euros per year. Anything less is not taxed. We have no such limits yet. If the bill does not have a clear differentiation, it will cause serious social discontent,”
– the economist warns.
Pendzin explains how the mechanism for renting an apartment online will change:
“To place an ad, you will provide your TIN. The tax authorities will know who you are right away. After the ad disappears, the website may ask if the apartment has been rented. If you say no, but you have, you will be blocked or fined.”
According to the expert, it is unlikely that such a bill will be passed before the elections, because such things are done immediately after the elections, when a politician has a margin of trust. Now, no one wants to lose the chance to get into the Rada. So, most likely, they will limit themselves to loud statements for now.
Thus, according to the economist, the government is trying to prepare in advance for a situation where foreign aid will decrease and economic needs will remain at the same level. However, any attempt to “get money out of the shadows” without clear rules and social dialog can lead to a deep social conflict. Especially in the context of political turbulence.
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