Shadow Business: A Problem That Can No Longer Be Ignored

10.10.2024

Ruslan Shostak, President of TERWIN

Ihor Khizhnyak today raised an important topic, highlighting a problem in the relationship between the government and business that can no longer be ignored, especially in light of tax increases starting from October 1.

The story of "Yabko" is just one of thousands of examples of shadow business in every sector of Ukraine's economy. And it's about UAH 1.6 trillion that the state loses annually.

On one hand, the government's and Hetmantsev's tax policy is quite understandable. I'm confident that businesses understand the issue of the UAH 500 billion budget deficit by the end of the year. So the money has to be found, as it is primarily needed for military purposes to protect Ukraine from the aggressor.

Will Ukrainian businesses withstand the tax increase? Yes, they will. At what cost—that's another question. It's clear that tax hikes will, in one way or another, affect consumers.

On the other hand, the story of "Yabko" is a vivid example of the real opportunities for the state to replenish the budget by bringing shadow economic players into the open. It’s no secret that about 50% of Ukrainian businesses operate in the shadows. This amounts to around UAH 1.6 trillion annually when compared to budget revenues in 2023. This is the same money the state is missing out on from businesses, yet the legitimate businesses continue to pay taxes. Where's the logic and common sense in that?

What I believe needs to be done quickly and effectively:
Create sectoral councils involving tax experts and ministries. Break down each sector and identify the shadow players. Make them "come clean" within a set period.

Businesspeople like Ihor Khizhnyak could head this coordination council in their industry, and then a miracle would happen. We would all feel how the money starts appearing in the budget, rather than in officials' wallets.
Aside from financial benefits, we would finally move towards healthy competition in the market. Where the winner isn’t the one with the best connections at customs, but the one with the most creative ideas and the best offer for the customer.

This photo is meant to attract attention; it's called "God forbid" or "what will happen if this doesn't come to pass."