The idea of introducing Cashback for purchasing goods from domestic producers aims to stimulate domestic consumer demand and support Ukrainian producers. As part of this state program, Ukrainian citizens will receive compensation for part of the cost of goods produced in Ukraine (10% compensation is proposed).
According to think tanks, implementing the proposed mechanism to support domestic producers is financially burdensome for the state budget and somewhat complicated to administer. In addition, the constitutional rights of Ukrainian citizens to access their private life, namely their purchases, will be violated. An unfair cashback mechanism, which operates exclusively through retail chains, will further distort competition in the retail market, where such chains already have a dominant market power. Such a mechanism would harm small producers and retailers and thus further strengthen the market power of large retail chains.
State support for domestic producers should be realized by ensuring a favorable business and investment climate, eliminating bureaucracy and corruption, protecting property rights, reforming the tax and law enforcement systems, and providing domestic businesses’ rights and economic freedoms in Ukraine.
Any other instruments of financial support for domestic producers may be used. Still, they should be temporary (relocation, restoration, assistance to start production or re-equipment), targeted at the industries most affected by the war, transparent, and accessible in terms of conditions (State Program 5-7-9) with minimal government interference in the market, and limited in time and scope.
If these requirements are not met, the use of state programs leads to market distortion, inefficient allocation of financial resources, and favoritism to “selected” companies, thus killing the main driver of a market economy—competition.
Because of the above, think tanks urge the authorities to abandon the idea of introducing Cashback for the purchase of Ukrainian goods, which is counterproductive for the country’s economy, and focus on institutional improvements to the business environment in Ukraine, in particular, the implementation of essential projects to reboot the BES, the State Tax Service, and the State Migration Service (draft laws No. 10439, 9243, 6490d).
Signatories:
Institute for Social and Economic Transformation
Institute for Economic Research and Policy Consulting
CASE Ukraine
Institute of tax reforms
Advanter Group
Growford Institute
Office of the Chief Economist of the Coalition of Business Communities for the Modernization of Ukraine
Chamber of Tax Advisors
Center of public expertise