However, industry players say that although the new legislation will somewhat improve profit margins for IT business owners, it failed to address the main issue of eliminating shadow employment, a step needed across Ukraine’s economy to bolster its strained pension fund.
Instead, parliament only July 6 reduced the corporate income and value added tax for Ukrainian software developers to 5 percent, down from 25 and 20 percent, respectively. Legislators also sought to cut personal income tax rates for employees working in the IT industry from 15 to 5 percent. The measure, included in a previous version of the legislation, was rejected by Yanukovych.
Still missing from the legislation are measures which would cut Ukraine’s heavy payroll taxes, which keep the IT industry, as well as the nation’s economy overall, in the shadows. Keen not to pay payroll taxes in the 34-50 percent range, many employers in Ukraine pay the lion’s share of employee salaries under the table. They only show a small portion of what is paid to tax officials.