The reform sets out to create a favorable environment for doing business in Ukraine, which is a prerequisite for Ukraine to achieve a higher level of economic development and integration into the European Single Market.
Clear and transparent rules of market play, fair and predictable behavior of regulatory bodies, absence of regulatory barriers is crucial to a full-scale development of entrepreneurship in the country and attraction of investments. These are the conditions that should support initiatives in the sphere of business climate.
Why change anything?
Difficulty of starting a business, lack of one source of information about business activities, a cumbersome system of tax administration, abuses by regulatory bodies, corruption and intricate regulation is by no means an exhaustive list of external barriers a business owner faces in Ukraine. Add a number of challenges inherent to every business, for example, achieving minimum level of sales for the company to make a profit, keeping accounts, managing human resources, making timely payroll payments, and a number of other «little» operational things. Doing business in Ukraine does not look easy any more, does it?
To encourage new enterprises to enter the Ukrainian market and to enable existing ones to focus on development rather than on handling external factors that are within the competence of the Government, the Ministry of Economic Development and Trade has launched a number of reforms united with one key goal of making Ukraine a more attractive place for doing business.
What does the reform involve?
1. Deregulating and ease of doing business
The simpler the rules of play, the more players and supporters. Simple rules for business mean more companies (and jobs) in the market, making it more attractive for investors. The public policy of deregulation is effectively instrumental to creating an open environment for doing business in Ukraine by introducing high-quality regulation where all processes are transparent and regulatory acts are reduced to the bare minimum.
Deregulation is an important prerequisite for introducing a European business model in Ukraine and constitutes a package of activities intended to upgrade the registration system, significantly simplify the permit and licensing systems, ease of state control and state supervision activities, and fighting corruption.
As initiated by MEDT (the Ministry of Economic Development and Trade), the Government introduced Deregulation CMU Meetings aimed at prompt review of critical draft regulations that reduce regulatory pressures on business and improve the business climate. Such meetings cancel dozens of outdated regulatory acts, amend applicable laws as necessary to produce transparent and fair rules of play. The past six deregulation waves demolished more than a thousand archaic regulatory documents and simplified doing business in a number of sectors.
Improving Ukraine's position in the Doing Business ranking. For fifteen years so far World Bank experts have been ranking countries by the ease of Doing Business, which serves as an indicator of countries’ investment attractiveness and provides direct or indirect influence on the countries’ positioning in other economic rankings/indices. Ukraine has been confidently moving up the Doing Business ladder in recent years. For example, it went up 12 positions in the past three years, from 83 in 2016 to 71 in the previous year.
In 2018, the Cabinet of Ministers of Ukraine adopted a decision that would perceptibly reduce regulatory strain on business, increase the country's investment attractiveness by improving the situation in all of ranking’s components such as Trading Across Borders, Dealing with Construction Permits, Enforcing Contracts, and Minority Investors Protection.
Of course, a lot more efforts should be made and quite a few other regulatory barriers lifted for Ukraine to make it to TOP-50 countries by the Ease of Doing Business. This is what MEDT and engaged experts will continue working on.
2. Supporting and developing small and medium-sized enterprises
Entrepreneurship, small and medium-sized enterprises are the driving force of leading national economies worldwide. For example, SMEs account for 99.8% businesses in the EU, create 66.8% jobs and 57.8% added value.
Research conducted by MEDT and the Better Regulation Delivery Office suggests that SME situation in Ukraine is quite similar to that in the EU market with about 99% businesses being small and medium-sized enterprises employing 6.6 mln Ukrainians, or 81% of all commercially employed workforce. Ukrainian SMEs account for a total of 65% sales of goods, works, and services.
Aware of how crucial this segment is for the country's economy, the Government approved the 2020 SME Development Strategy in 2017 and the related Action Plan in May 2018, which involves:
- creating the SME portal
- creating the SME Development Office at MEDT
- carrying out a pilot project of partial guarantees for SME loans
- implementing a pilot project of creation of a regional chain of entrepreneurship centers
- improving regulatory procedures for SMEs
MEDT made the first important step towards realization of the Strategy as early as in October 2018 by creating the Small and Medium-Sized Enterprise Development Office funded by the European Union within the FORBIZ project and the EU4Business Initiative. Priorities of the Office are to draft programs of support to small and medium-sized enterprises, simplify access to funding, and develop regional infrastructure of SMEs support. These are the issues that the Office will focus in 2019.
Notably, comprehensive support of SMEs, especially small businesses, is part of the EU-Ukraine Association Agreement.
3. Transparent and risk-based state supervisions of business
A transparent system of state inspections is a key indicator of a favorable business environment in a country. A new approach to inspecting businesses based on the analysis of risks inherent to a company's operations was introduced on January 1, 2019 in Ukraine, while the outdated Soviet system of supervision has passed into oblivion. Which does this mean?
Transparent and clear. No more "surprises" for business owners — all details of inspections, including comprehensive and custom plans of control activities, supervision findings are now available online in the Integrated Automated System of State Supervision (Control)
. Over 200,000 business users have used it in recent months.
Risk-based. The new system sets out to introduce risk-management related to the company's operations, whereas 99% of inspections before represented thoughtless recording of violations. The new system of inspections will be based on risk assigned to an enterprise depending on specialization. For example, enterprise where products or the manufacturing processes carry potential risks for human life or health will be subject to a more detailed and thorough review. Inspections will also focus on the service areas prone to violations such as kindergartens, secondary schools, health care facilities etc.
Importantly, priorities of the new system include a comprehensive approach to state supervision. From now on, if a business is up for inspection by two or more regulatory bodies, the inspection will be conducted in parallel, where the company is supervised once by respective authorities, which simplifies the inspection process and rules out duplication of inspectors' functions and, as a result, abuse.
Client-focused. A business owner will no longer need to study thousands of pages of legislation in preparation for an inspection. Instead, check lists will be introduced with specific requirements individually listed for each type of business. Firstly, this list will enable the business owner to look into own business and see whether it is organized properly and there are any existing violations that can be corrected before the scheduled inspection. Secondly, they will clearly understand what shall be checked by the inspector, as the check list clearly limits competences of a regulatory body to prevent any inspection outside the scope of the list.
Apart from check lists, this innovation introduces online complaints, open ratings of regulatory bodies, the inspections calendar and history — these and other services within the new system of business inspections will be available at the beginning of the year on the basis of the Integrated Automated System of State Supervision (Control)
4. Simplifying tax administration
A number of surveys suggest that tax administration is the "greatest headache" for Ukrainian business. So, improving the quality and effectiveness of tax administration has been a priority objective of the Ministry of Finance in several recent years. The reform has been approached in a complex way with focus placed not only on legislative regulation but also on transforming the State Fiscal Service into a modern service organization through a series of innovations.
Digitalization of services. Virtually each of us is used to getting services online. This saves a lot of time and, occasionally, money. This is why integrating IT solutions into SFS is a priority of the reform that will substantially simplify tax administration, make interaction with the Service simpler and more open, and additionally minimize risks related, among other things, to manual interference with the work of information systems.
For example, the Automated VAT Refund Register was launched in 2017, which minimized the risks of corruption and tampering with the refund process; the VAT Risk Monitoring System enabled the monitoring of invoices and minimization of corruption risks; the functionality of the Taxpayer's e-Cabinet has been updated.
Building institutional capacity. The SFS reform started in 2017 is still underway in four key areas — services to taxpayers, audit, repayment of tax debt, and HR management. In addition, a KPI system designed jointly with experts of the Reanimation Package of Reforms in partnership with the Research Institute for Fiscal Policy and the Institute of Tax Reforms has been introduced for SFS.
Legislative regulation. Draft laws aiming to create one account for taxes and fees, the single contribution for general compulsory state social security, except for the value-added tax and the fuel excise, were prepared and submitted to the Verkhovna Rada of Ukraine in 2018. It is critical to introduce a single account, which will significantly simplify the procedure of tax payments to the budget.
Last year, the matter of information exchange between regulatory bodies and local governments was resolved, with effective information exchange on the issues of taxes and fees.
Further steps will be taken in the medium term to improve the quality and effectiveness of tax administration closely connected with continued SFS reform by standardizing the fulfillment of key functions and procedures and improving collaboration on the matters of international taxation and Ukraine's compliance with provisions of the EU-Ukraine Association Agreement.
Goals and objectives for the current year
- MEDT will continue deregulation in a number of sectors. Those of top priority include freight transportation, subsoil use, construction, agriculture and food, fiscal policy, foreign economic activities, energy, information technology, and telecommunications.
- Continued systemic effort to improve Ukraine's Doing Business ranking. For example, MEDT will coordinate central government agencies to accelerate the tasks defined in the Action Plan. Ukraine’s target for 2019 is to go ten positions up in the ranking.
The reform is implemented by
the Ministry of Economic Development and Trade of Ukraine, the Reform Support Team of the Ministry of Economic Development and Trade of Ukraine, the State Regulatory Service, the Better Regulation Delivery Office, the Ministry of Finance of Ukraine, FORBIZ, USAID / UK aid project Transparency and Accountability in Public Administration and Services / TAPAS.
Materials and links
- Overview of the 2018 achievements of the deregulation reform
- Law of Ukraine On the Development and Government Support of Small and Medium-Sized Enterprises in Ukraine
- The 2020 Strategy of Development of Small and Medium-Sized Enterprises in Ukraine
- Action Plan towards implementation of the 2020 SME Development Strategy
- Start Business Challenge: step-by-step instructions on starting a business
- Resolution of the Cabinet of Ministers of Ukraine On Approving Criteria for Assessment of the Risk of Doing Business and for Determining the Regularity of Scheduled State Supervision (Control) Activities in the Area of Anthropogenic Security and Fire Safety by the State Emergency Service
- Resolution of the Cabinet of Ministers of Ukraine On Approving the Methodologies for Designing Criteria for Assessment of the Risk of Doing Business and for Determining the Regularity of Scheduled State Supervision (Control) Activities