Monitoring and Assessment of Legislation Adopted during Martial Law: Abolish Not Leave Unchanged

Monitoring and Assessment of Legislation Adopted during Martial Law: Abolish Not Leave Unchanged

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5 July 2023
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This study was conducted as part of the “Monitoring Wartime Legislation and Progress Towards Democratic Reform” project implemented with the support of NED. As part of the research, we surveyed experts in various fields, as well as civil society organizations, regarding harmful regulations introduced during martial law in their respective areas of expertise.

In this article, we present the generalized opinion of the experts we surveyed and the results of our research on legislation. The list of regulations that are harmful to the economy and require repeal, as mentioned in this article, is not exhaustive, so we would appreciate your insights and thoughts after the article’s publication.

What has been adopted?

Since the beginning of Russia’s full-scale invasion on February 24, 2022, over 3,000 regulations have been introduced in Ukraine. They aimed to support the Ukrainian economy, establish alternative paths of external trade, impose sanctions on Russia, and enhance Ukraine’s defense capabilities.

The majority of these regulations have been effective and successful. Some LAs were not directly related to martial law but focused on harmonizing Ukraine’s legislation with EU norms and fulfilling the conditions for EU membership. For example, last year, laws such as “On Media,” “On National Minorities (Communities) of Ukraine,” and the Istanbul Convention were adopted and ratified. Additionally, cooperation with the EU in the field of transportation has deepened, including signing an agreement on freight transport by road, establishing a common aviation area, and implementing amendments to laws to ensure the functioning of the “customs-free” regime.

Positive steps were taken in the deregulation of businesses (such as reducing the number of fire inspections and improving regulations regarding subsoil use), modernizing legislation (including the recognition of concepts like “freelancing” and “mobbing” in labor law, prohibiting discriminatory job descriptions, and enacting a new law on official statistics), and continuing reforms in various sectors including finance, healthcare, energy, and others.

The country’s situation during the full-scale war required lawmakers and the government to implement appropriate measures. This included the direct imposition of martial law and its subsequent extensions, imposing sanctions against individuals and entities from Russia as well as those supporting or aiding the aggressor in the war against Ukraine, banning activities of pro-Russian NGOs and Russian symbols, the potential restriction of actions of political parties that justify or deny Russian aggression, and the introduction of criminal liability for collaborationism, with increased penalties for crimes against the foundations of national security during martial law. Additionally, a new type of sanction was introduced – the confiscation of assets of sanctioned individuals for the benefit of the state. These funds are to be directed toward enhancing defense capabilities and the recovery of Ukraine.

However, some regulations that were adopted quickly, without considering the long-term consequences, have proven to be harmful to the country’s economy or have had only short-term positive effects.

The methodology for identifying harmful legislative acts (LAs)

To assess the legislation introduced after the full-scale invasion, we conducted a survey among our experts and civil society organizations (both in-person and through Google Forms). Respondents were asked to identify LAs that, in their opinion, could be characterized as follows: 

  • Ineffective regulations that need to be repealed immediately;
  • Effective regulations that should be abolished after the end of the martial law regime;
  • Effective regulations whose implementation should continue after the repeal of the martial law regime;
  • Regulations that need to be introduced.

We categorized all responses according to the main areas of impact: taxes, the military sphere, business regulations, centralization of governmental powers, access to information, and education. Further details on each of these areas are provided below.

Harmful regulations

Taxes

Legislative acts (LAs) in the field of tax regulation were primarily aimed at reducing taxes and, accordingly, supporting business activities and mitigating the shock of the full-scale invasion. Though these changes predominantly addressed the existing economic challenges when they were adopted in March 2022, it became apparent over time that tax incentives significantly reduce budget revenues and often are not a decisive factor for the survival of enterprises.

Transitioning to a simplified tax system

The tax liberalization introduced by the Law of Ukraine No. 2120-IX, which allowed large businesses to transition to a 2% turnover tax instead of corporate income tax (18%) and value-added tax (20%), is a prime and most evident example of harmful regulation that needs to be repealed immediately or even “yesterday.” Although the initial version of the law had restrictions on the eligibility to benefit from this simplified tax regime – annual revenue had to be up to 10 billion UAH, and companies were not allowed to operate in specific industries (gambling, currency exchange, production and sale of excisable goods, extraction and sale of minerals), over time, the restrictions based on turnover were removed, and even the gambling industry was allowed to switch to the simplified system.

This regulation also allowed individuals registered as private entrepreneurs in the 1st and 2nd groups to avoid paying the unified tax or switch to a 2% tax rate instead of 5% for the 3rd group. However, the easing of the taxation system for large businesses had primarily negative consequences.

The tax reduction received negative evaluations immediately after adopting the corresponding law. And the budget losses turned out to be several times higher than the initial estimates: actual losses amounted to UAH 10 billion in the past year instead of the projected UAH 300 million per month (which is UAH 3 billion for 2022). This occurred in a situation of a significant increase in defense and social support expenditures, reduced opportunities for borrowing resources on domestic and international markets, and dependence on financial assistance from foreign partners.

Considering these consequences and the position of the IMF on this matter, lawmakers began discussing the cancellation of these tax privileges in the fall of last year. By the end of January 2023, the Prime Minister initiated the registration of draft law No. 8401 in the Verkhovna Rada, which aims to return to the pre-war taxation system. In May, Parliament voted in favor of its first reading, but thousands of amendments were submitted to the draft law to delay its consideration. The explanatory note states that returning to the general taxation system will mobilize approximately UAH 8 billion for this year’s budget. Additionally, earlier, separate legislation prohibited the gambling industry from being part of the simplified tax system.

On the last day of June, the Verkhovna Rada voted in the second readingin in favor of abolishing the privileges since August 1, 2023. The document is currently awaiting the President’s signature.

Tax benefits

In addition to the transition to the simplified tax system, other changes were made in this area last year, which experts have assessed as harmful.

In June of last year, the Verkhovna Rada adopted laws No. 2310-IX and No. 2331-IX, amending the Tax and Customs Codes to provide benefits for industrial parks. Specifically, participants in industrial parks were exempted from corporate income tax for a period of 10 years, as well as from VAT and import customs duties for the import of new equipment and components, on the condition that these “freed-up funds” are directed towards the development of the respective company. Additionally, local authorities were granted the right to establish preferential rates for local taxes for participants in industrial parks.

Research has shown that in institutionally weak economies like Ukraine, benefits for industrial parks do not significantly impact the development of corresponding industries. The loss of tax revenues is not offset, and they often lead to (not always successful) resource redistribution rather than the creation of new technologies or products. Deregulating the economic environment and simplifying tax administration appear to be more effective approaches.

Abolishing taxes

Respondents also mentioned law No. 2142-IX, adopted in March 2022, which abolished VAT and import duties for imports by companies. Although these changes were reversed in the summer of last year, the surveyed experts classified this regulation as both harmful and effective as temporary regulations. Indeed, in the spring of 2022, Ukraine needed a lot of imported goods, including those for the military, as many enterprises had ceased operations. However, imports undermined the competitive position of Ukrainian businesses, increased the trade balance deficit, and heightened the demand for currency.

A similar situation arose with the reduction of excise tax to 0% and the decrease in VAT on the import of fuel and petroleum products from 20% to 7%, as stipulated in the same law No. 2120-IX. Experts believe this regulation had a temporary positive effect but should be repealed today.

Lawmakers took the first step towards repealing fuel privileges in September 2022 when they voted for law No. 2618-IX, which slightly increased excise taxes (except for fuel for military purposes) and maintained the 7% VAT rate on fuel. According to the same law, the VAT rates will return to their previous level from July 1, 2023. Additionally, in early June 2023, Bill No. 9348 was registered to increase excise rates for autogas and diesel fuel above the pre-war level, and to decrease in excise rates for petroleum.

Business regulation

In this area, among the temporarily beneficial regulations, experts mentioned law No. 2118-IX on a moratorium on tax audits, reporting requirements during the period of martial law, and exemption from liability for late payment of taxes. The Verkhovna Rada of Ukraine voted to resume tax audits starting from August 1, 2023, but reduced their number and narrow down the scope of entities subject to audits compared to the pre-war period. In particular, the supervisory authorities will focus on auditing entities involved in producing or selling excisable goods, as well as those engaged in the gambling business or operating as financial institutions. 

The changes to the law on public procurement, known as the localization law, enacted at the end of 2021 and coming into effect last year after being signed by the President, received negative evaluations in this sphere. These changes establish requirements for the degree of localization of goods subject to public procurement. This can undermine market competition and the fundamental characteristics of proper procurement: transparency, cost-effectiveness, and efficiency.

Experts also classified the relaxation of fuel quality requirements and the extension of the resolution on state price regulation for “social goods” as harmful regulations that should be repealed.

Furthermore, introducing a list of critical import goods on the day of the full-scale invasion was deemed harmful. It was intended to prevent currency outflows by prohibiting the importation of products not included in the list. Over time, the list expanded and lost practical significance. Therefore, the list was abolished in July 2022 alongside the reintroduction of import taxes. However, restrictions on the import of services remain in place to curb currency outflows (as it is more challenging to verify the provision of services compared to the importation of goods).

Military sphere

The “harmful” regulations in the military sphere were mainly related to public procurement. 

The first issue was the complete secrecy of defense procurement and the shift to direct contracts with suppliers instead of conducting competitive bidding, as introduced by Cabinet Resolution No. 169, dated February 28, 2022. Although the government’s motives for classifying security information were understandable, in the non-weapons procurement, it resulted in the impossibility of civilian oversight and reduced competition among the applicants. As a result, there were high-profile scandals regarding inflated prices for food supplies to the military.

To partially address this issue, the Verkhovna Rada of Ukraine adopted Law No. 2958-IX, introducing transparency in defense procurement. This law provides for public reporting on defense procurement in the Prozorro electronic system, including contract prices for purchasing goods and services that are not state secrets or related to weapons. The Ministry of Defense also established a Public Council to assist in organizing procurement (excluding weapons). Experts believe that such a procedure has a right to exist during wartime. Still, measures must be taken to restore transparency in the procurement process and fully implement the system outlined in the Law of Ukraine, “On Defense Procurement,” after the war’s end.

Another problem in defense procurement arose from Resolution No. 335 of the Cabinet of Ministers of Ukraine dated March 20, 2022, which stipulated that during the period of martial law, the price for supplying goods, performing works, and providing services to meet the needs of the security and defense sector should be determined based on the cost calculation formed by the executor of the state contract or agreement.

However, the price components do not include profit, meaning suppliers are not entitled to derive economic benefits from these operations. No matter how much businesses may want to assist the army out of their own willingness and patriotism, working at a “break-even” point is hardly possible, at least for an extended period.

In addition to the economic problems, legislative regulation in the military sphere has also exposed legal and moral issues. We are referring to the highly debated (1, 2, 3) law No. 2839-IX, which strengthens punishments for crimes committed by military personnel. On the one hand, the leadership of the Armed Forces of Ukraine considers these measures necessary. On the other hand, human rights activists and military personnel consider this law discriminatory and in violation of the constitutional rights of service members.

Centralization of powers

Several regulations that experts identified as harmful were related to the centralization of powers and the rollback of decentralization reforms, which proved beneficial both before and during the full-scale invasion.

Firstly, the experts point out the potential harm of creating the National Council for Recovery of Ukraine from the War, approved by Presidential Decree No. 266/2022, as it produces an imbalance of power branches, with local government and civil society being merely formally represented in the Council.

Secondly, experts negatively evaluate the changes introduced in April 2022 by law No. 2259-IX, increasing the role and influence of military administrations over local self-government bodies and, in some cases, limiting the powers of local authorities. This law grants the President and the Verkhovna Rada the right to make personnel changes without conducting competitive procedures, checks, or approvals. Additionally, the head of a military administration can obtain the powers of a village, town, or city council, its executive committee, or the head of a village, town, or city, in addition to the powers directly assigned to their competence, while regional and district military administrations acquire the powers of the respective councils. As a result, communities are effectively being governed by individuals the residents did not elect.

Access to information

Access to information is a right guaranteed by Article 34 of the Constitution of Ukraine. In peacetime, access to information is not only a convenience and efficiency in conducting business and fulfilling the functions of state bodies but also transparency, accountability, and control over the actions of government authorities.

However, the same article of the Constitution states that this right may be limited in the interests of national security. It is on this basis that the government closed access to state registers and public information at the beginning of the full-scale invasion. Moreover, government bodies restricted access to certain information on their official websites and ceased to publicly report on the results of their work.

While the closure of specific registers may have been a necessary step, considering the aggressor country’s potential use of this information, such as data from the State Land Cadaster, the concealment of other parts of the registers and public information has sparked discussions in the public sphere.

Thus, the surveyed experts unanimously consider the closure of the Unified State Register of Declarations maintained by the National Agency for Corruption Prevention (NACP) as harmful. They also find the provision in Law No. 2259-IX, which allows individuals mentioned in Article 3 of the Law of Ukraine “On Prevention of Corruption” to refrain from submitting asset declarations until the end of martial law and three months after it, as detrimental. The same applies to Law No. 2134-IX, adopted in March of the previous year, which abolished the requirement of the Budget Code regarding the mandatory publication of reports on the execution of local budgets, public disclosure of information on the implementation of budget programs by principal recipients of budget funds, and the submission of an annual report on the execution of the law on the State Budget of Ukraine.

Another aspect of restricting government transparency is the inadequate coverage of parliamentary and governmental activities. In September 2022, the Verkhovna Rada adopted a resolution prohibiting the broadcast of parliamentary sessions during martial law. Furthermore, they do not provide reports on their work or necessary contact information, including committees. On the other hand, the Cabinet of Ministers no longer updates the agenda information on its official website.

A number of civil society organizations have called for repealing these and other restrictions on access to information. Although in September 2022, the Verkhovna Rada registered Bill No. 8071, which reinstates the obligation for relevant individuals to submit declarations, Parliament has not yet considered it.

Additionally, it is necessary to repeal Presidential Decree No. 152/2022 on implementing a unified information policy during martial law, which effectively introduced the national “Unified News” telethon. Although it initially held value and played an essential role in informing people during the onset of the full-scale invasion, questions have arisen regarding its relevance and the necessity of presenting events from different perspectives. Furthermore, opposition channels are not included in the participants’ block of this telethon (excluding pro-Russian propaganda channels, of course).

State service

Several regulations concerning access to public information and the peculiarities of civil service were deemed temporarily effective by the surveyed experts, but they emphasized the need for eventual repeal.

The aforementioned Law No. 2259-IX, which allowed for the suspension of asset declarations during the period of martial law, also halted the competitive selection process for positions in government bodies, local self-government, and state and municipal enterprises. Applicants for positions are only required to submit a statement, a personal data form, and documents confirming Ukrainian citizenship, education, and work experience.

Over a year of full-scale war, both state authorities and local self-government predominantly adapted to operating under new conditions. Therefore, the relaxations introduced in the early months should be repealed. Conducting competitions for positions is necessary to continue implementing public service reforms and attract more competent and qualified professionals, ensuring transparency and accountability in their activities.

In February of this year, a group of people’s deputies submitted Bill No. 9041 to the Verkhovna Rada, which proposes the resumption of competitions and the declaration of individuals in public service, excluding state bodies and local self-government bodies located in temporarily occupied territories and areas of armed conflict. However, the bill is still under consideration by the committee.

According to experts, two regulations require review: the ban on remote work from abroad for employees of state sector economic entities, established by Cabinet of Ministers Resolution No. 481 of April 26, 2022, and the restriction on foreign travel for civil servants and deputies, introduced by Cabinet of Ministers Resolution No. 69 of January 27, 2023.

On the one hand, these regulations are related to national security concerns, particularly regarding these employees’ access to sensitive information. On the other hand, the prohibition may lead to the loss of qualified professionals who have chosen to stay abroad for their own safety and/or the safety of their families.

Education

In the field of education, several problematic regulations were introduced during martial law, but they are expected to have negative consequences after its conclusion.

First and foremost, there is the National Multi-Subject Test (NMT), introduced in 2022 as an alternative to the External Independent Evaluation (EIE) during martial law. What’s the issue with it? Unlike the EIE, the NMT is simpler as it consisted of a single online test covering three subjects: Ukrainian language, mathematics, and Ukrainian history. It does not include open-ended questions and is shorter in duration. In contrast, the EIE includes testing in 4-5 subjects, of which three are compulsory, with different test formats (multiple-choice, open-ended). As a result, students preparing for admission to fields that require an in-depth study of specialized subjects, such as chemistry, physics, or foreign languages, did not have a competitive advantage since their knowledge in these subjects was not considered. Moreover, although the NMT is presented as “transparent” and “objective,” there are possibilities for dishonest practices among applicants, although organizers promise that cheating will be impossible in 2023.

In 2023, the format and content of the NMT have been partially changed. This year, prospective students’ knowledge is assessed in three subjects, but now two of them – Ukrainian language and mathematics – are compulsory, while students choose the third subject. It can be Ukrainian history, a foreign language (English, German, French, Spanish), biology, physics, or chemistry. Additionally, the minimum threshold for passing the test has been increased: students must achieve at least 10% of correct answers in each subject. In 2022, answering at least one test question correctly was sufficient. However, according to experts, these requirements are still considered too lenient.

Another controversial decision was made last year regarding the maximum simplification of admission requirements to institutions of vocational pre-higher education, which has been extended to 2023. According to these rules, the competitive selection is based on a creative competition for creative specialties and an interview or motivation letter, depending on the form of funding. Each educational institution determines the minimum value of the competition score independently.

Understandably, the reconstruction of Ukraine after the war will require specialists with vocational education; therefore, these conditions are intended to attract as many students as possible to education. However, on the other hand, admission based solely on a creative competition, interview, or motivation letter creates opportunities for corrupt practices, subjectivity, and unequal admission opportunities for students with different income levels. Moreover, such practices may result in the enrollment of unmotivated students seeking either a formal education document or exemption from mobilization.

What has to be done?

In addition to assessing the harmful and beneficial short-term regulations, we also asked experts about the LAs that need to be adopted. The respondents provided recommendations both on the need to adopt already developed LAs and on working on new regulations. The majority of proposed regulations are related to regulatory activities, legal issues, and updating and harmonizing Ukrainian legislation with EU standards.

In the field of law and regulatory activities, there are several proposals from experts regarding the adoption and development of LAs:

  • Ratify the Rome Statute, which Ukraine signed back in 2000. Some Ukrainian government officials and the Office of the President agree on the need to ratify the document but believe it cannot be done until the war ends, as it may harm Ukraine due to a potential wave of fabricated cases by Russia concerning war crimes committed by Ukraine. However, industry experts and other government officials, including the MFA, insist on the necessity of ratification “right now.”
  • Ratify the modernized Council of Europe Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data (Convention 108+). Ukraine ratified the original Convention adopted in 1981 in 2010. In 2018, the Council of Europe adopted Protocol CETS No. 223, which updates the Convention. Currently, there is a bill registered in the Verkhovna Rada under the number 8153 aimed at bringing Ukrainian legislation in the field of personal data in line with the updated EU norms, including the modernized Convention.
  • Ratify the second additional Protocol to the Convention on Cybercrime adopted in 2022 and update Ukrainian legislation in this field;
  • Adopt bills No. 5617 and No. 5618, which regulate matters of children-friendly juvenile justice and aim to transform the institution of corrective measures for minors who have committed crimes into restorative measures in accordance with European practices. These regulations also focus on training professionals skilled in communicating with children in conflict with the law and preventing the re-traumatization of violence victims in court. As of March 2023, Bill No. 5617 has been sent for further revision after committee consideration, while Bill No. 5618 has been under development since June 2021;
  • Adopt Bill No. 4298, “On Local State Administrations,” which envisages the introduction of prefects, considering the revisions made up to October 2021;
  • Develop and adopt the Urban Planning Code, the work on which began in February 2023. This law aims to systematize the main regulations in the field of urban planning, involve all stakeholders such as developers, architects, construction industry experts, and civil society organizations, and address questions and discussions (1, 2, 3) that arose during the development of Bill No. 5655, which was adopted by the Verkhovna Rada in December of the previous year but has not yet been signed by the President. Additionally, there is an unanswered petition calling for the veto of this law;
  • Update the Law of Ukraine “On Libraries and Librarianship,” which has been in effect since 1995. To achieve this, work needs to continue on Bill No. 5002, which has passed its first reading;
  • Restore public access to the work of Parliament. 

Conclusions

During the period following the start of the full-scale invasion, lawmakers took steps to help economic agents recover from the initial shock and mobilize resources for functioning in wartime conditions. These steps were mostly necessary and relevant to the existing challenges. However, some of the decisions that were made turned out to be not only hasty but also caused significant damage to the country’s budget, considering that every hryvnia was valuable.

The list of regulations we provided is not comprehensive and exhaustive. It mainly focuses on laws and specific government resolutions, although it is clear that harmful regulations were adopted at other levels as well. Moreover, we highlighted only six specific blocks of regulations, but there are many more topics and issues for discussion. For example, we can mention the order issued by the Ministry of Youth and Sports that prohibited Ukrainian athletes from participating in competitions where Russians and Belarusians competed. Another example is the directive from the National Center for Operations and Technology Management of Telecommunications Networks regarding implementing a phishing domain filtration system, which effectively involves collecting user data from websites.

The government and Parliament have partially rectified their mistakes from the previous year or are in the process of doing so. This includes reverting to the pre-war tax system (rather than increasing taxes, as often claimed) and disclosing some information about defense procurements. However, one pressing issue that remains is the transparency of government operations. Considering that almost 1.5 years have passed since the start of the full-scale invasion and the state “machine” has largely adapted to the new working conditions, it is necessary to return to transparent work practices and maximize public engagement.

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