For more than two years, almost 2 million small and micro businesses in our country have been "stormed" by regulatory innovations adopted since September 2019.

So what led to this?

As you know, the Simplified system of taxation, accounting and reporting, which has been operating in Ukraine since the late 90's, was and is the "lifeline" of small and micro businesses. It began to be created from a fixed tax on the markets of Ukraine in 1998. And this immediately led to the fact that hundreds of thousands of traders in the markets began to be legalized as individual entrepreneurs. At the same time, revenues to local budgets from private individuals increased significantly, increasing many times over. This is a consequence of real deregulation - less accounting and reporting, less tax control, less bribes - more budget revenues and the creation of a layer of middle class independent of government. The experience has been extended to the whole microbusiness since 1999. The main advantage of the simplified system of taxation, accounting and reporting was and is the simplified accounting and lack of bureaucracy in relations with tax authorities, which has radically reduced corruption in the field of relations with fiscal authorities.

But this situation did not satisfy the "schemers" and their customers among the oligarchs and corrupt officials. The main tool of the bureaucracy is to keep fiscal records with the help of fiscal registrars of settlement operations (RSO), because where there is more control there are always more bribes!

Therefore, in 2019, after the adoption of Laws of Ukraine 128-IX "On Amendments to the Law of Ukraine" On the use of registrars of settlement transactions in trade, catering and services "and other laws of Ukraine on de-shadowing settlements in trade and services" and 129- IX "On Amendments to the Tax Code of Ukraine on the de-shadowing of payments in the field of trade and services", popularly called "total fiscalization of individual entrepreneurs", mass dissatisfaction among more than one million three hundred thousand individual entrepreneurs working on a simplified system of taxation, accounting and reporting was growing. This dissatisfaction resulted in a series of numerous protest rallies, the most powerful of which were the November-December 2020 rallies.

So why do imdividual entrepreneurs on the Simplified System not accept fiscal RSO?

  • The use of fiscal RSOs entails additional costs for running their small business, which are significant for individual entrepreneurs. According to estimates by various experts, the costs per year range from 10 billion hryvnias, with full use of software RSO only, to 20 billion hryvnias with the use of "classic" RSO. It is clear that this should significantly affect the profitability of small and micro entrepreneurs, which is still not very large, will force them to significantly raise commodity prices.
  • Rising costs of bureaucratic support for business and a radical increase in corruption risks make private individuals even less competitive compared to organized networks of large retail outlets, and thus squeeze them out of the market, contribute to the concentration of trade and even higher retail prices. We all saw this vividly during the first lockdown in 2020, when all small trade was closed and large and illegal networks continued to operate quietly. In addition, there is a growing shadow activity on the Internet by unregistered individuals who do not pay any taxes at all and exist outside the legal field.
  • With the introduction of the total fiscalization of the 2nd and 3rd groups of the simplified taxation system provided for in the current version of the Tax Code, there is an extremely high risk of corruption in the tax authorities during inspections of cash discipline of sole proprietors. Limited and relatively small (compared to the number of fiscalizable individual enrepreneurs) number of taxpayers - "controllers" do not have in this case a clear procedure for risk-based inspections and therefore will, in all likelihood, apply a selective approach to control based on bribes and "orders" by competitors. Entrepreneurs are most afraid of this, because the mention of such an approach is still very vivid. Obviously, this will not increase budget revenues, but will only worsen the already unfavorable situation with corruption in the tax authorities. The state and entrepreneurs lose, corrupt actors win.

In order to overcome these negative phenomena, under public pressure, on December 22, 2020, the Council for the Promotion of Small Business under the President of Ukraine was established (according to Presidential Decree №582 / 2020).

The Council and the Working Groups of the Regional State Administrations established on behalf of the President of Ukraine involved about 300 different small business associations, as well as representatives of the current government. The heated debate formed an approach to solving the problems facing small and micro businesses in the country, government and society.

What was done?

The draft law, which was developed by the Working Group on streamlining the application of the RSO of the Council for the Promotion of Small Business Development, is based on balancing the interests and capabilities of both sole proprietors and the state. His main theses are:

  • The project is based on non-expansion of fiscalization. The expansion of the coverage of individual entrepreneurs in the Simplified System with the requirement to apply fiscal RSOs has been going on since 2016, but the real fiscal effect has not been proven so far. The increase in the number of fiscal RSOs does not meet the expectations regarding the coverage of those groups of entrepreneurs in relation to which there is a requirement to apply fiscal RSOs. This is especially true of trade in complex household appliances and jewelry. Some individual entrepreneurs have not established such RSOs and are not subject to control, which once again proves the impossibility of real control over the activities of such a large number of entrepreneurs by the fiscal authorities. Therefore, a rational decision is not to expand the circle of potential violators and not to increase corruption by covering new groups with the requirement of fiscalization.
  • The project proposes to index the income limit of individual entrepreneurs on the simplified taxation system, below which it may not apply RSO (except for risk groups) to 560 minimum wages (more than 3.6 million hryvnias)
  • For those groups of entrepreneurs who are already covered by the requirement of fiscalization, it is proposed to abolish trade accounting, because the requirement of commodity accounting actually eliminates the main advantage of the Simplified system - simplified accounting, and significantly increases operating costs, bureaucratic burden and corruption risks.
  • For those entrepreneurs who are already obliged to use fiscal RSO, or for those who want to use RSO voluntarily and want to use RSO software, there are significant benefits. Work with the program RSO has been significantly bureaucratized since the end of 2020. And the project of the Working Group adds the possibility to automatically generate reports for those private individuals who conduct all transactions through the RSO.
  1. In order to avoid chaotic and "custom" checks of compliance with individual entrepreneurs cash discipline in the project, a method of risk management with the inclusion of the consumer in this process is proposed. But we are not talking about the return of disputed funds (cash back), which may have been spent by the consumer, because proving the amount of costs is problematic if the consumer is not issued a check. It is only a question of bonuses to the consumer, if he complained about the business entity that does not issue checks and the fact of non-issuance is established during the control purchase, which is carried out by the controlling body on the basis of current legislation. Occasionally, if the entrepreneur issues a check during the test purchase (and this is only if it is subject to the requirement of fiscalization), the sanctions are not applied and the consumer is not rewarded. So there is no incentive for "custom" complaints.
  1. For the first time (!), the project provides opportunities for tax authorities to combat illegal activities, but these opportunities do not affect the rights of legal business.
  • Regular (more than 3 times a month) sales by an individual who is not registered as an entrepreneur equated this group of traders, in liability for non-use of RSO, to individual entrepreneurs;
  • The controlling body may obtain information in terms of counterparties on the account of the business entity by court decision. But the draft provides for the possibility of obtaining such a decision under the accelerated procedure in accordance with Article 283 of the Code of Administrative Procedure of Ukraine. Thus, the ability to work without fiscalization is the exclusive right of registered individual entrepreneurs using the Simplified System!


The main advantages of the Working Group's bill are that it does not interfere with the structure of the simplified system of taxation, accounting and reporting, but while maintaining its capabilities, at the same time provides tools to combat the scheme use of the Simplified System.

Recently, "creative people" have become more active, proposing to significantly change the structure of the Simplified System, on the one hand worsening the situation of the smallest individual micro-entrepreneurs and on the other hand expanding the simplified taxation system for larger businesses. However, any changes in the structure of the Simplified System should be based on thorough research and observations, so as not to lead to new tax evasion schemes and not to destroy the most vulnerable private individuals, who are practically not businesses but self-employed.

Finally, it should be noted that without simplifying the general taxation system, reducing its bureaucratization, introducing innovative approaches (as a tax on withdrawn capital), the simplified system will have to be used not only by microbusiness, but also by the state, on the general system of taxation.

Simplification of the outdated general system, liberalization of business activities, deregulation - it is the path to economic growth, growth of state revenues and a real fight against corruption. Fighting small and micro business is the way to the abyss!