Ukraine providing boost to small businesses
As Ukraine’s new government continues working to solve numerous problems, officials predict that the battered economy will face serious challenges this year.
Small- and medium-sized enterprises are having an especially difficult time, but business leaders are supporting government initiatives to improve the conditions for such companies.
“We are looking at a difficult year in which 30 percent of our expenditures are planned for defence and debt repayments,” said Finance Minister Natalia Jaresko. Economists, however, said there are a range of possibilities to jump-start the economy. Officials and experts believe reanimating Ukrainian small- and medium-sized businesses can be a reliable solution.
Ukraine’s economy is traditionally dependent on the limited number of large-scale enterprises, many of which hold oligopolistic positions. But according to Ukraine’s State Service for Regulatory Policy and Entrepreneurship, small and medium businesses account for 99.7 percent of the country’s registered enterprises. However their share in the nation’s economy remains low by Western standards.
“One of the main problems of our economy is that small and medium businesses’ contribution to the country’s GDP is 10 to 12 percent, while in Europe it is 50 to 55 percent,” Andriy Dlyhach from New Country, a civic association that advocates for citizen participation in governance, told SETimes.
Ukraine has a complicated system of taxation and low tax transparency, which pushes local small and medium businesses to go underground.
During a recent conference in Kyiv, Maksym Kunchenko, vice president of the Ukrainian League of Industrialists and Entrepreneurs, said the nation’s three main economic problems are crediting, governmental regulation and taxation.
Small business owners Anna Kovalenko and Anastasiya Yankovenko are proud of designing, producing and selling women’s apparel with a “made-in-Ukraine” tag. They agree that small and medium enterprises will turn around the country’s fortunes.
“As well as it will improve the welfare of each Ukrainian,” Kovalenko told SETimes. “For example, our factory is 200 kilometres away from Kyiv. We employed a lot of people in that small city and we pay them good money. Also we pay taxes.”
But to encourage all businesses to come out of the shadows and stop fuelling the underground economy, local businessmen suggest that reformers eliminate tax corruption by changing legislation.
They advocate the reduction of taxes for small and medium businesses and the launching of tax vacations for a period of two or three years. They also seek protection and development of local markets and Ukrainian producers and a simplified and streamlined registration and taxation process.
Prime Minister Arseniy Yatsenyuk said the government’s new economic policy includes all these measures.
“The government offers two simple solutions. First is to halve the single tax for small and medium businesses. Second, not to check them for two years,” Yatsenyuk said.
The cabinet also has suggested that the parliament adopt the law on tax compromise, which includes the introduction of a zero tax return, reduction of the number of different kinds of taxes from 22 to nine and a promise to reduce the number flat-tax categories from six to four, determined by the type of business or income.
“This will provide an opportunity to fight corruption and claim an equity principle in distribution and taxation of incomes. And it corresponds to European and international standards,” Yatseniuk said.
The reformers believe these changes will convince more companies to stop doing business off the books and enter into the official economy. In turn, cash reserves will increase, allowing the state to pay off all social payments. Also they hope the reforms will increase the nation’s GDP, which directly influences citizens’ incomes. Meanwhile an increasingly transparent business climate makes it easier to attract an infusion of foreign capital.
The government also hopes to generate more revenue by decreasing fiscal and administrative pressure on businesses and creating equal rules for everyone, reducing the incentive to dodge taxes.
As a part of a governmental initiative the European Investment Bank (EIB) will provide a 400 million euro loan in support of projects run by small and medium businesses and middle capitalisation companies.
Ekaterina Rigg, the European Bank for Reconstruction and Development’s manager for small business support in Ukraine, said the EBRD will increase the number of grants for small- and medium-sized businesses in Ukraine from 95 to 110 this year.
“Starting from 2010, the EBRD has awarded grants worth 2.3 million euros to Ukrainian small- and medium-sized businesses. According to the programme’s statistics, a year after the launch of the project 76 percent of enterprises involved increase their turnover by 54 percent, and 52 percent of enterprises increased employment by 10 percent,” Rigg said.
Economists say perhaps the only advantage Ukraine has is a variety of vacant niches. It means that filling those niches gives the bright outlook to Ukraine’s economic recovery. However this demands political will and professional moves.
“The past year has taught us a good lesson,” Dlyhach said. “The state has to conduct reforms and the civic platform is ready to co-operate with the government.”
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