After being forced to switch from the simplified to the general taxation system, 487 Internet providers with 1316 regional offices ceased operations.
According to the National Commission for the Regulation of Electronic Communications (NCRC), in response to request According to MP Oleksandr Fediyenko, in August-October 2024, 487 business entities applied for exclusion from the register of electronic communication networks and services providers. As of October 8 386 such applications have been processed. Taking into account regional offices, 1,316 entities have ceased or will cease operations.
The MP’s inquiry was aimed at finding out how many Internet providers ceased operations due to the change in tax policy towards them at the end of September. The National Commission provided statistics for a longer period, and obviously not all of the providers ceased operations for this reason, but the mass exodus is related to the latest changes. MP Fediyenko responded to the provided information:
«I don’t know where they went, we can assume that some of them closed, some went into the shadows and left the regulator’s supervision. Some may be for sale. But these are people! These were self-employed citizens of Ukraine. … I think in a month we will get another -1000 providers from the register who were the first to digitalize the country».
Why do small providers go out of business?
At the end of September, the State Tax Service massively canceled the registration of Internet providers as taxpayers under the simplified taxation system. Oleksandr Fediyenko attracted public attention to this situation in early October:
«Today, the State Tax Service of Ukraine has transferred all enterprises that were on the simplified taxation system to the general taxation system without any inspections, drawing up acts, and simply stupidly in their registers. …But why only providers? We have a lot of other industries that use the simplified taxation system. … My proposals to my colleagues to regulate this issue at the legislative level were rejected quite harshly. Those who are stakeholders in this order will use their profits from mobile services to dump and subsidize fixed-line services until small businesses disappear. The cost of mobile communications will certainly not increase, at least not for now. It will be a long process, but after the provider market is destroyed, competitors will leave, and monopolists will raise the cost of services».
At the same time, Danylo Hetmantsev, Chairman of the Tax Committee of the Verkhovna Rada, publicly congratulated everyone on the «de-shadowing» of the telecommunications services industry:
«As of today, all fixed-line Internet providers operate exclusively under the general taxation system. No more splitting up for 300 individual entrepreneurs. The law is the same for everyone. As it should be in a European country. And no, there will be no increase in the cost of services. It’s all a cheap throwaway».
How to notes «Kommersant Ukrainsky», Internet providers were banned from operating under the simplified system in early 2022, but the government did not address this issue, probably because of the war. The Tax Code does not prohibit the simplified taxation of Internet service providers with KVED 61.10, but there is a ban for those who operate and maintain networks. Starting from January 1, 2022, the law «On Electronic Communications» will be in force, according to which companies providing communication services must simultaneously perform maintenance and operation of networks — this provision effectively prohibits their simplified taxation.
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