The price of solutions: why one-time government payments for generators will not be of much help to small businesses
29 January 18:58
In light of the extraordinary energy situation, the Ukrainian government has decided to assist small businesses with a modest one-time financial aid package, while also considering plans to impose an additional 20% VAT on these same businesses. Komersant investigated how this is being received by entrepreneurs themselves.
Recently, a photo of a receipt from a restaurant appeared on social media, in which the customer was asked to pay separately for the generator. This innovation quickly sparked online discussions about how acceptable and legal it is. Its continuation is not the subject of this article. Therefore, we can afford to perceive this “service for generator operation” as a given and the current Ukrainian reality. Moreover, it is very expensive for entrepreneurs.
Some of our colleagues have already calculated that 7-10 kW gasoline generators, which are often used by small shops and cafes, guarantee additional daily expenses of almost UAH 700 when operating for 8 hours without electricity — and that’s just for gasoline. That adds up to well over 20,000 UAH per month. We don’t know if the government has done similar calculations, but their compensation figures are significantly lower.
Funds for business
The government has decided to support small and medium-sized businesses, which continue to operate despite emergency power cuts caused by Russian shelling and incur additional costs as a result, with a whole package… of two measures.
First, a one-time financial payment has been promised as assistance. Sole proprietors in groups 2–3 who work in socially important areas — such as restaurants, pharmacies, coffee shops, grocery stores, bakeries, and other establishments that provide essential services — can count on this payment. They will be able to receive a one-time payment of 7,500 to 15,000 UAH, depending on the number of employees and provided that they have at least one employee. Applications can be submitted through the Diya portal. The funds can be spent on the purchase and repair of energy equipment, fuel for generators, and payment for electricity services.
“This assistance is not considered full compensation for the cost of energy equipment. It is a quick anti-crisis tool that allows microbusinesses to partially cover energy-related costs and continue operating during power outages. For systemic solutions, the state offers other investment tools in parallel,” commented Oleksandr Tsybort, Deputy Minister of Economy, Environment, and Agriculture of Ukraine, on the government’s initiative.
Presumably, the additional instruments referred to another government proposal within the framework of the “energy package.” Enterprises that meet the criteria of the 5-7-9% program are offered a zero-interest targeted loan for the purchase of generators and batteries. The maximum loan amount is up to UAH 10 million.
The Ministry of Economy also explained that one-time assistance and the 5-7-9% program do not compete with each other but complement each other, allowing businesses to develop comprehensive solutions for energy modernization.
The Alliance of Regional Small Business Associations positively assesses the very fact that the government recognizes the problems of small businesses in the context of the extraordinary energy situation and is trying to respond. However, they note that the effectiveness of the proposed solutions is, unfortunately, extremely limited. This is the argument of Tetyana Slaschuk, an entrepreneur from Khmelnytskyi and representative of the ROMB Alliance.
“One-time financial assistance in the amount of 7,500-15,000 UAH for sole proprietors in groups 2-3, even in socially important areas, does not correspond to the real costs of businesses to ensure energy independence. At current prices, these funds do not cover the cost of a generator, its maintenance, fuel, or stable operation of equipment. In fact, this is not about support, but a symbolic gesture. More like PR. As for interest-free loans for generators and batteries under the 5-7-9 program, it should be noted that the market has long offered businesses similar instruments — installment plans, leasing, commercial loans. For a significant portion of small businesses, the key problem remains not the interest rate, but the general instability, falling incomes, and the inability to predict operations even a few months in advance,” the entrepreneur emphasizes.
Bogdan Mosunov, head of the Sumy Business Association “4Business” and member of the Coordination Council of the National Platform for Small and Medium-Sized Businesses, notes that any help is good. At the same time, he believes that a one-time aid of 7,500 or 15,000 hryvnia will not save the situation, and cites the example of a local program.
“In Sumy region, such programs are implemented at the local level. For example, the relevant regional program provides for compensation for electricity up to 200,000 hryvnias. People submit a package of documents and are compensated for 50% of the cost of either solar panels, generators, or storage devices. This is more helpful, in my opinion, than receiving a one-time payment of 7,500 or 15,000 hryvnia,” says Bohdan Mosunov.
He also talked about programs that help local entrepreneurs work in the current conditions.
“We have a frontline community. There are four support programs in place. These are internal relocations. For example, if a production or office facility in one location has been hit and the business needs to move literally across the street, compensation is provided for the relocation of the business. There is the aforementioned compensation for the purchase of generators, solar panels, etc. Compensation is also provided for loans, which is in demand. And there is another program that has been in place since the very first day of the full-scale invasion: compensation for damaged property. The amount is small, up to UAH 100,000, but it is still important assistance,” emphasizes the head of the Sumy Business Association “4Business.”
The head of the parliamentary finance committee, Danylo Getmantsev, also recently reminded officials that taxpayers are exempt from liability if they are unable to fulfill their tax obligations to file tax returns, register tax and excise invoices, etc., in particular due to power outages.
“I ask the Ministry of Finance and the State Tax Service to urgently correct what I am convinced are unintentional distortions in law enforcement when you require taxpayers to collect all the paperwork in the world to confirm force majeure. I am convinced that an official notification of the power outage on the official channels of the power-generating companies is sufficient and necessary proof,” the deputy emphasized.
The Alliance of Regional Small Business Associations agrees with the importance of abolishing penalties for late filing of reports, as this problem is precisely related to the lack of electricity and internet. If the state really wants to support small businesses during the energy crisis, then, as entrepreneur Tetiana Slaschuk emphasizes, systemic solutions should be a priority:
- real simplification of administration, not its complication; predictable tax policy without constant “surprises”;
- removal of administrative pressure, which only further burdens entrepreneurs in crisis conditions.
Funds from business
When talking about constant “surprises” from officials, entrepreneur Tetyana Slaschuk from Khmelnytskyi probably meant the “surprise” in the form of imposing value-added tax on many individual entrepreneurs. The government has not yet abandoned these plans, as VAT for sole proprietors is one of the mandatory conditions for the approval of Ukraine’s new cooperation program with the IMF. The discussion revolves mainly around what level of income should be considered the basis for registering an entrepreneur as a VAT payer. There is a view that the annual income threshold for taxation of UAH 1 million is too low and could be increased to UAH 2-3 million.
Entrepreneurs, however, have not changed their attitude towards the initiative to expand the circle of VAT payers at the expense of sole proprietors. For example, the Alliance of Regional Small Business Associations considers this idea extremely dangerous for small businesses, especially in the current conditions of war and energy instability. Lesya Zolotaryova, an entrepreneur from Myrhorod who represents the ROMB Alliance, continues.
“Unfortunately, our association is not fully involved in the discussion of these plans. Raising the turnover threshold to UAH 2-3 million — that is, the discussion of the figure itself — does not solve the problem in essence, because the VAT mechanism itself is overly complex and costly for micro and small businesses. Small businesses today do not need handouts or new obligations, but a simple and understandable approach: the opportunity to work, survive, and preserve jobs. Everything else is secondary,” the entrepreneur emphasizes.
Bogdan Mosunov, who heads the Sumy Business Association “4Business” and is a member of the Coordination Council of the National Platform for Small and Medium-Sized Businesses, says that he and his colleagues are participating in discussions on possible tax innovations, communicating with deputies and tax officials, and holding forums and round tables. The entrepreneur has the impression that there is some kind of political struggle going on, directed against the simplified taxation system, which they constantly want to destroy.
“It would be better not to introduce such things as is proposed to do with VAT for sole proprietors, and then entrepreneurs would not need any compensation. Ukraine has a simplified taxation system, and there is no need to change it. There should be no VAT here at all. Neither for the first, nor for the second, nor for the third group of sole proprietors. If, when registering as a VAT payer, an entrepreneur enters into tax administration, it will be very expensive. For microbusinesses, this is equivalent to closure. They become uncompetitive, their products become more expensive, and simply no one will buy them. And for small businesses that try to continue operating, this means guaranteed staff reductions. Plus, there will be a shortfall in local budgets, because if an entrepreneur currently pays a single tax and then switches to the general system, all VAT goes to the state budget, and the local budget receives nothing,” notes the head of the 4Business Business Association.
Entrepreneurs’ representatives never tire of emphasizing that the simplified system should not be destroyed, but rather the administration of the general taxation system, including VAT, should be simplified.
Author: Serhiy Vasilevich
