Ukraine plans to tax all incoming packages from abroad. Here's why this initiative is not relevant.

A draft law has been registered in the Verkhovna Rada that aims to introduce taxation on parcels from abroad, regardless of their value. The initiative was put forward by Daniil Getmantsev, the head of the relevant committee in the Verkhovna Rada of Ukraine.

Getmantsev explains that the idea arose at the request of several business associations, including the American Chamber of Commerce (ACC), the European Business Association (EBA), the Federation of Employers of Ukraine (FRU), and others. According to him, the goal of the draft law is to enhance the transparency of imports, adapt to European standards, and support Ukrainian entrepreneurs.

However, is Ukraine truly ready for such changes, and how will they affect citizens and customs operations? More details are available in the RBC-Ukraine article.

What does the draft law propose?

Currently, a 10% duty and a 20% VAT are applied to parcels valued over 150 euros (on the portion that exceeds this amount).

The main change proposed is to introduce VAT on goods from foreign online stores, regardless of their value. A duty will also be applied on prices above 150 euros.

Additionally, they want to impose VAT on regular parcels from individual to individual that exceed 45 euros. For example, if a relative or acquaintance abroad sends you a parcel worth more than 45 euros, you will need to pay an additional 20% VAT.

Moreover, the draft laws suggest simplifying VAT administration and expediting parcel processing at customs. To achieve this, the possibility of VAT payment directly by the supplier or the marketplace is being introduced.

To ease administration, a system similar to the European IOSS mechanism is proposed, which allows VAT to be paid directly by the supplier or platform.

How does the IOSS system work?

The IOSS allows foreign companies that sell goods in the European Union to register at a one-stop shop for submitting declarations and paying VAT for goods sent to consumers in EU countries. Goods sold through marketplaces or suppliers pay VAT at the rates set in the buyer's country.

Sellers can register in a single registry and submit declarations, paying taxes in one place instead of doing so in each individual EU country. This significantly simplifies administration, reduces bureaucratic barriers, and improves transaction control. VAT is collected before the goods reach the end consumer.

However, it should be noted that in the EU, the IOSS system is voluntary, and its implementation has occurred gradually. Work on its launch has taken many years, and consultations and negotiations between member countries are still ongoing. Mandatory implementation of this platform is only expected by 2027, contingent upon reaching a consensus among all 27 member states. Until then, the system remains optional, and not all market participants use it.

This means that the successful experience of the EU in implementing the IOSS system as an effective tax and fee administration mechanism is not yet complete. The system is still being refined and adapted, and its current functionality cannot be considered final or ideal. Therefore, referencing European experience in this context may be manipulative.

What does the government say?

Such an initiative is actively supported not only by business associations but also by the Cabinet of Ministers. Earlier, Finance Minister Serhiy Marchenko stated that 51.5 million international postal shipments were imported into Ukraine without customs duties over the past year.

According to the minister, the problem is that no one actually knows how many goods are inside each of the 51.5 million parcels.

He mentioned that almost all online trading and e-commerce in Ukraine operate in the "shadow." "Conditionally speaking, within the limit of 150 euros of non-taxable value, we import everything," the minister said.

However, the main issue lies in how to check such a volume of parcels and whether customs will be able to handle this task.

Is customs ready for such changes?

New requirements will significantly increase the workload on customs. Even a basic inspection and valuation of goods is currently nearly impossible due to the limited resources of the State Customs Service.

According to Getmantsev's colleague on the tax committee of the Verkhovna Rada, MP Yaroslav Zheleznyak, in 2023, out of 51.9 million parcels sent to Ukraine, only 468,000 had a value exceeding 150 euros, meaning less than 1% of parcels were subject to customs clearance. If customs begins processing all parcels, it will create a serious collapse in the system.

"Customs authorities and postal operators simply will not be prepared for such a volume of work, leading to significant delays in delivery. Given the previous experience with other customs reforms, it is crucial for this process to be introduced gradually and with consideration of the real capabilities of the infrastructure," Zheleznyak insists.

Former head of the State Customs Service Maksym Nefedov also points out that the customs infrastructure today is not capable of handling the load that would arise from the introduction of the new tax. Therefore, instead of the usual few days, clients may have to wait several weeks or even months for their orders. "Customs does not have the physical capacity to process this volume, given the state of the customs infrastructure. If the load on customs officers increases 25 times, they will not check 25 times more. Nothing will change," he notes.

At the same time, he highlights the complexity and inefficiency of the current VAT and duty payment procedures. Current schemes, such as the use of "gifts" between individuals, are actively utilized to evade taxes, and additional taxation may only exacerbate this situation. Thus, instead of solving the problem, we will only make it worse.

How will this affect Ukrainians?

Ukrainians actively use international platforms to purchase affordable goods. The introduction of a tax on all parcels could significantly impact their budgets. For many families, ordering clothing, electronics, or other products from abroad is a way to save money, especially amidst high domestic prices.

The tax may not only raise the cost of goods but also reduce the availability of certain categories of products. Instead of stimulating domestic production, this could lead to an even greater financial burden on consumers.

In this context, economist Oleksiy Kush believes that the government should simplify the postal shipment regime as much as possible, thereby fostering the development of postal and logistics companies. "But does charging duty and VAT on a parcel costing 1 dollar from AliExpress incur huge administrative costs for these taxes? The whole point of raising taxes is lost, as there will be no additional revenue — the collection and administration of such taxes will cost more than the additional amount collected. There is no logic in this," the expert argues.

According to Meest Group President Rostyslav Kisil, with such an initiative, the number of international parcels will decrease by at least 30-50%, and administrative costs will multiply. Some international players may even abandon entering the Ukrainian market altogether.

"However, the worst part is that such initiatives seem aimed at increasing budget revenues, but in reality, they will lead to a surge in smuggling. I can already see how 'gray' schemes with minibuses at the border will reactivate. Instead of transparent postal shipments with full tracking, goods will be transported in trunks without any control," Kisil noted.

He also points out that today, almost every 20th parcel contains necessary equipment for the army, such as affordable gear, ammunition, drones, and parts for them. This category of goods may also be at risk.

This thesis is echoed by representative of the intelligence platform InformNapalm Mykhailo Makaryuk, who notes that such initiatives will create even more problems for the army, as a large number of essential goods for the front are imported through international platforms.

Such initiatives could "bury" a number of crucial sectors of the Ukrainian military-industrial complex, particularly the production of electronic warfare, unmanned aerial vehicles, and optics. "Frontline fighters may have to forget about good equipment and ammunition at reasonable prices," Makaryuk states.

Are there alternatives?

Experts suggest considering alternative approaches to regulating imports. For instance, improving existing customs procedures without imposing total taxation could avoid unnecessary burdens on customs and citizens while ensuring market transparency.

In particular, Nefedov believes it is necessary to implement a Single Window for foreign sellers, creating a separate system that will not block volunteer shipments. Secondly, it is important to simplify the parcel processing through the "Diia" platform and conduct an analysis to understand where changes are needed and where costs exceed revenues. Only after this can limits be seriously revised.

Additionally, according to the former head of customs, it is essential to establish cooperation with large international platforms like Amazon or Alibaba to open warehouses in Ukraine or implement mechanisms for automatic tax calculation by sellers. However, he acknowledges the difficulty of implementing such changes in our country due to its small market and low attractiveness for international companies. "These are negotiations that will take years, but we need to start doing it now," he emphasizes.