How to bring Ukraine’s economy out of the shadow amid war?

The fight against the shadow economy is likely to intensify in Ukraine in the near future. President Volodymyr Zelensky recently said that it was unacceptable for businesses to operate in the “shadow” during and after the war.

Hlib Vyshlinsky, the executive director of the Centre for Economic Strategy (CES), believes that the importance of tax cuts for the shadow economy in Ukraine is exaggerated. Proof of this is the willingness of Ukrainians to migrate as workers and move their businesses to countries with a higher tax burden before the war and now.

“Moreover, as the experience of the reduction of the Unified Social Tax from 40% to 22% has shown, tax cuts alone, even for labour, do not lead to de-shadowing the economy. Especially since the tax burden in Ukraine is now lower than in its neighbouring countries. That’s why I would rather prefer to close tax loopholes, in particular, to finalize the requirement for registrars of settlement transactions for “simplified” after the war – without it a huge part of the economy lives in black cash”, – noted Vyshlinsky in a comment to RBC-Ukraine

Such an approach, in his opinion, requires a complete reboot of the tax authorities and more control and improvement on the quality of state services. “The war should be an impetus to realise that the state is an ally and not an enemy of the citizen, and this understanding should come from both sides,” he said.

The article was published in ukrainian on RBC-Ukraine.