An article by Volodymyr Dubrovsky, senior economist at CASE Ukraine, for Ekonomichna Pravda about the fact that the simplified taxation system (STS) for microbusiness performs a critically important function, but there are schemes with abuse.
The most common scheme is the artificial fragmentation of a large business into dozens of “fictitious PE”, usually of the second group, often without employees. Formally, a microbusiness is, in fact, a single company.
The consequences are serious:
budget losses in 2024 are estimated at UAH 10–15 billion;
distortion of competition;
discrediting the very idea of a simplified system. What to do about it?
Key theses:
Why is it important to distinguish a scheme from a real business?
The fight against fragmentation should not target honest individual entrepreneurs – including those who work in the format of franchises or marketplaces. The key is to understand economic logic.
A real marketplace or shopping mall:
-does not trade itself, but provides infrastructure;
-is interested in competition between sellers;
-allows anyone on the basis of a public offer;
-sellers set their own prices.
A fictitious-platform only imitates this model:
– all “sellers” have the same prices;
– the assortment is centralized;
– there is no public offer;
– an outside entrepreneur cannot enter the system.
A similar story is with pseudo-franchises. In a classic franchise, the franchisor sells a business model, and the franchisee invests his own funds, owns the property and makes decisions. In fragmentation schemes, everything is the opposite: “individual entrepreneurs” do not own assets, work at fixed prices and actually perform the role of employees without labor guarantees.
How do schemes work in practice?
Usually:
– the trademark belongs to the organizer;
– profit is accumulated through the sale of goods to pseudo-individual entrepreneurs with a minimal markup;
– real profits are returned in cash or through “gray” mechanisms.
The world has long learned to deal with this – from anti-disaggregation rules in Britain to strict financial monitoring. The key principle: clear criteria for connection, not total pressure on everyone.
What is the problem with the Ukrainian approach?
The steps proposed in the National Revenue Strategy (for example, mandatory VAT on turnover from UAH 1 million) will hit real sole proprietors, but will not break the fragmentation schemes. The experience of Romania confirms this: the number of microbusinesses has decreased threefold, and economic growth has slowed down.
What to do instead?
Key proposals:
introduce GAAR and rules to combat fragmentation, but with clear, transparent criteria;
shift responsibility to the organizers of the schemes, not nominal sole proprietors;
focus fiscal control only on risky entrepreneurs;
stimulate consumers to demand checks (lotteries, cashback);
make financial monitoring mandatory, not recommended;
introduce flexible SSO limits depending on the number of employees.
A set of specific signs of fragmentation is also proposed – from the synchronous registration of individual entrepreneurs and shared IP addresses to the absence of a public offer and single prices. The problem of business fragmentation can and should be solved in a civilized way – so as to stop the schemes, and not destroy small businesses. There is an alternative. The only question is whether the state is ready to choose a smart path, and not the easiest one.
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