Important Draft Laws. Issue 4: Mobilization Expansion, Grain Export Scheme Minimization, and Teacher Social Protection Enhancement

Over the past two weeks, 58 bills were registered in Parliament (42 initiated by people’s deputies, 12 by the government, and four by the President), along with 34 draft resolutions. We have selected the most important ones for you.

The past two weeks have focused on curbing the shadow economy. Key changes in this area have involved grain exports, fuel accounting, and the taxation of virtual assets (cryptocurrency, NFTs, and in-game skins).

Sectoral changes

Project No. 10225 introduces taxation of virtual assets for the first time (previously, they were not taxed). The new tax, called the Investment Income Tax, is set at 18% of the profit generated from virtual assets. Owners of virtual assets are also required to pay a military fee of 1.5% of their profit. Profit from virtual assets is calculated at the time of sale, exchange, or gifting of such assets as the difference between the selling and buying prices. For individuals, the taxes will be paid by the platform (e.g., a cryptocurrency exchange), where the transfer of rights to virtual assets takes place (buying, selling, gifting). Individual entrepreneurs in groups 1-3 and legal entities on a simplified tax system (single tax) will not be able to conduct transactions with virtual assets. The project also specifies that operations with virtual assets are not subject to VAT.

The bill introduces mandatory financial monitoring for transfers of virtual assets amounting to UAH 30,000 or more. Monitoring will be carried out by the platform where the transaction takes place. Therefore, each transfer operation of such assets must contain information about the initiator and recipient of the transfer (names or names of legal entities, identification codes, unique identifiers of parties on the trading platform, etc.). Failure to comply with these requirements may result in a fine of UAH 170,000 (10,000 untaxed minimum incomes of citizens) imposed by the National Securities and Stock Market Commission (NSSMC). 

Furthermore, Project No. 10225 introduces bankruptcy procedures for companies that issue and distribute tokens/cryptocurrency (issuers) and platforms that facilitate the circulation of these assets. Information about initiating bankruptcy proceedings must be published on these companies’ websites. In case of a threat of bankruptcy or actual bankruptcy, the commercial court must appoint an arbitration manager to manage the bankrupt’s assets (or to prevent bankruptcy). The manager must have a special certificate issued by the NSSMC.

The project also prohibits advertising the future value of virtual assets and promoting financial pyramids in advertisements. 

The involvement of multiple stakeholders, including MPs through the parliamentary Finance Committee, the regulator (the National Securities and Stock Market Commission, NSSMC), and the business community through Ernst and Young, is indeed a good practice when the positions of all parties can be taken into account at the stage of drafting bills.

Combatting tax evasion schemes during the export of grains and oilseeds

Bills No. 10168 and 10169 aim to combat tax evasion schemes while exporting grains and oilseeds. If passed, only VAT payers can carry out export operations for grains and oils (since March 2023, this requirement has been in effect based on amendments to the Transitional Provisions of the Tax Code). They will be required to issue a separate tax invoice for each item of goods and register it in the Unified Register of Tax Invoices before submitting the customs declaration. If customs clearance occurs more than 30 days after submitting the tax invoice, it may be denied. Other grounds for denial include the low value of goods compared to the minimum export prices set by the Ministry of Agriculture (currently unavailable), a higher value of goods in the customs declaration compared to the tax invoice, and technical discrepancies in documentation, such as incorrect codes according to the Ukrainian Classification of Goods for Foreign Economic Activity (UCGFEA) or differences in the details of tax invoices.

In essence, the bill proposes the introduction of pre-registration of tax invoices, which should later match the volumes and values of goods with the customs declaration. According to the bill’s authors, this is expected to minimize opportunities for abuse during the export of agricultural products. 

Alternative Bills No. 10168-1 and 10169-1 pertain to the repatriation of foreign exchange earnings from agricultural exports by introducing advance export deposits. Specifically, for goods to be released beyond the customs territory, exporters are required to submit a certificate of replenishment of the export deposit equivalent to at least 10% of the customs value of the goods. If the total amount of advance export deposits reaches $35 million or more, the exporter may be exempt from making additional deposits when exporting agricultural products. Failure to timely return foreign exchange earnings to Ukraine (starting November 11, 2023, within 90 days) will result in the National Bank transferring the deposit to the state budget.

Bill No. 10168-2, in addition to the provisions outlined in the main bill, places more emphasis on VAT reimbursement. Bill No. 10168-3 introduces several additional concepts, including the “Origin Confirmation System for Agricultural Products” in the State Agricultural Register (an automated record of the transfer of ownership and movement of agricultural goods on the customs territory of Ukraine from the moment of production to export). The functioning of this system is to be developed by the Cabinet of Ministers. Bills No. 10169-2 and 10169-3 stipulate that the customs clearance of grains and oilseeds can be carried out using a separate simplified customs declaration submitted periodically. Under these conditions, data in the customs declarations do not require adjustment.

Most of the changes contained in Bills No. 10168, No.10169 and their alternative versions replicate the provisions of the export support regime introduced in March 2023. This includes the requirement for exporters to be VAT payers and the submission of a tax declaration before the customs declaration, which should later match, among other things. However, market participants have expressed concerns that this regime has not been effectively implemented. Whether the feedback from exporters will be taken into account in the further development of these new bills remains to be seen. 

Project No. 10215 is aimed at strengthening control over the circulation of illegal fuels. It proposes categorizing gas condensate and oil as excise goods with a zero excise tax rate. This measure is intended to avoid additional consumer tax burdens while ensuring control over these products.

Additionally, the project suggests introducing an excise tax on organic solvents and diluents at a rate of 245.50 euros per 1000 liters (for comparison, the excise tax rate on gasoline is 213.50 euros per 1000 liters) with the possibility of using tax promissory notes (a written commitment to pay the excise tax within 90 days from the moment of receipt of petroleum products, say, from a petroleum refining facility). Including gas condensate, oil, and solvents in the category of excisable goods allows for better control over their circulation through an electronic administration system for fuel and ethanol, minimizing their use in the shadow market and reducing the quantity of adulterated fuels. 

Bill No. 10234 proposes increasing the income thresholds for individual entrepreneurs (FOPs) as follows:

• Up to UAH 8.5 million (1,200 times the minimum wage) for individual entrepreneurs within group II. Currently, it is UAH 5.6 million or 834 times the minimum wage. (It is worth noting that the current minimum wage of UAH 6,700 is set to increase to UAH 7,100 from January 1, 2024).
• For individual entrepreneurs within group III working without hired employees, the income threshold is also set at UAH 8.5 million (1,200 times the minimum wage). For those in group III with up to 10 employees, it is UAH 21.3 million (3,000 times the minimum wage); for those employing more than ten people, the figure is UAH 42.6 million (6,000 times the minimum wage). Currently, all individual entrepreneurs within group III and using the simplified tax scheme have an income threshold set at UAH 7.8 million (1,167 times the minimum wage). The income threshold for electronic residents remains unchanged at UAH 7.8 million.

Changes in the field of science and education

Bill No. 10218 introduces a series of relevant definitions to regulate the research sector better. For example, it defines that research infrastructure entities include scientific institutions, higher education institutions, public research organizations, state key laboratories, national research centers, legal entities with scientific divisions, and more. The bill also envisages the creation of a Register of Research Infrastructures, which will be part of the National Electronic Scientific and Information System. The regulations for this system are expected to be approved by the Cabinet of Ministers. 

The bill establishes open access to research infrastructure, which includes granting various researchers the rights and opportunities to use objects of this infrastructure (scientific equipment, machinery, toolkits, instruments, inventory, computer programs, etc.) for scientific research and scientific-technical (experimental) developments. The terms and conditions for access to these objects must be approved in the Access Regulation developed by the owner of such infrastructure.

The document also introduces the definitions of “postdoctoral researcher” (a scholar who has attained the educational level of “Doctor of Philosophy” and conducts scientific research in postdoctoral studies), “postdoctoral program” (a competitive scientific program for postdoctoral researchers to conduct research in educational institutions or research organizations), and “postdoctoral research” (scientific research conducted by a postdoctoral researcher independently or under the supervision of an appointed research advisor).  

Project No. 10226 proposes providing monthly allowances to teachers in schools and kindergartens from local budgets in the amount of at least one minimum wage or more. According to the authors, these changes are intended to strengthen the human resource potential in the education sector, reduce the outflow of educators, and increase the attractiveness of working in this field. 

Of note, as of the end of 2022, there were 123,183 teaching staff in preschool education institutions, and the number of teachers in general education institutions at the beginning of the 2022/23 academic year was 401,836, totaling 525,000 individuals. The minimum wage for 2023 is set at UAH 6,700. Consequently, the proposed allowances would amount to UAH 3.5 billion per month. According to the Ministry of Finance’s data, the balances in the accounts of local budgets and budgetary institutions for both general and special funds for January to August 2023 amounted to UAH 201.8 billion as of September 1, 2023. However, it should be noted that these balances may be partially influenced by constraints on local community expenditures. Additionally, the financial situation in communities can vary significantly. It is unknown whether this bill’s authors have discussed it with local communities. 

Bill No. 10200 aims to promote the use of electronic textbooks or tablets in the educational process. The bill’s authors propose that the state provide students with specialized devices for reading electronic textbooks free of charge if they choose them over traditional printed ones. Schools are required to collect applications from students for electronic textbook reading devices before the start of the academic year. The Ministry of Education and Science will then fulfill these requests and provide the ordered devices on a non-refundable basis before September for student use during their studies. A student can apply for a new device after four years if necessary.

Of note, according to the Rozetka website, the cost of an e-book ranges from UAH 5,000 to UAH 15,000, and a tablet ranges from UAH 6,000 to UAH 20,000. According to the Ministry of Education and Science, the average cost of one textbook for the 6th grade is UAH 127. If we simplify it, assuming that, on average, eight textbooks are issued per class and education lasts for 12 years, the total cost of textbooks for one student over the entire education period would be approximately UAH 12,700. However, if a student instead uses three tablets or e-books during their education, the cost would be at least UAH 15,000 (at current prices). Therefore, in theory, this initiative could potentially reduce the costs of printing textbooks if (1) students use their devices for longer than four years and (2) in the future, the cost of printing increases while the price of gadgets decreases (which is likely).

According to the State Statistics Service, the number of students in general secondary education institutions at the beginning of the 2022/23 academic year was 4 million people. Therefore, if this initiative is approved and half of the students choose to use electronic textbooks, the cost of purchasing devices would be over UAH 10 billion.

Changes in the field of social protection

Bill No. 10235 proposes that local self-government bodies identify and take unclaimed real estate into communal ownership for further transfer to internally displaced persons (IDPs). If such real estate is suitable for living, it should be transferred to IDPs at the expense of housing certificates for the purchase of real estate. If the housing is unsuitable for habitation, the local authorities should first repair it using funds from targeted programs to support IDPs.

While this bill may not completely solve the housing problems of IDPs, who number in the millions, it can improve the situation with abandoned homes that have no owners and are slowly deteriorating in communities. 

Bill No. 10185 introduces additional sanctions against agro-industrial enterprises that violate legislation on the employment of persons with disabilities (current requirement: 4% of the workforce, or one job if the enterprise employs between 8 and 25 people). In addition to a fine equal to the average salary for each unfilled job for a person with disabilities, the bill imposes a ban on receiving state support for such enterprises. The alternative bill, 10185-1, has a provision to relax this requirement. Agro-enterprises do not lose state support if persons with disabilities have not applied to them for employment.

Protection of healthcare workers

Bill No. 10221 proposes to increase criminal liability for attacks on medical workers, pharmacists, rehabilitators, and rescuers while performing their official duties, equating them in this regard to law enforcement and military personnel. Currently, according to the initiator of the bill, M. Radutskyi, instances of attacks on medical workers are treated as hooliganism, which does not reflect the importance of their service and the risks they take to save human lives. Under the proposed changes, individuals who make threats of murder, commit acts of violence, or damage the property of medical professionals and their colleagues will face imprisonment for a term of 5 to 12 years. If they intentionally inflict bodily harm or cause death to the mentioned professionals, the perpetrator will be sentenced to imprisonment for a term of 9 to 15 years or life imprisonment.

Changes in mobilization

Bill No. 10209 considers the possibility of involving law enforcement personnel in the Armed Forces of Ukraine to ensure rotation for mobilized military members. Additionally, the bill proposes allowing territorial recruitment centers to call up reserved citizens or citizens eligible for deferment during mobilization if they have at least two years of experience working in state structures in positions that require the use of firearms. These state structures include law enforcement agencies such as the Ministry of Internal Affairs, National Police, SBU, intelligence agencies, border guard service, customs, security firms, and more.

When conscripting for military service, it is proposed to take into account the moral and volitional qualities of draftees. However, this norm appears problematic and subjective because there are hardly any unbiased ways to assess such attributes.

Moreover, the bill provides certain privileges for combat participants, such as appointment to positions in the civil service without competition if they meet the professional and qualification requirements.