The government will impose taxes on commercial property

Photo: Alexey Solodunov

The government is proposing to impose a tax on the owners of real estate, including hotels, offices, shopping malls, restaurants, warehouses, etc. The size of the tax will be 2% of the minimum wage per square meter per year, which is currently UAH 24.36. A corresponding bill On Introduction of Changes to the Tax Code was published yesterday on the official website of the Verkhovna Rada. The new tax will ensure an additional UAH 2.7 bn in proceeds to the budget, the Ministry of Finance claims.

Business is ready to pay

The increase in the tax load did not come as a shock to business owners. General Director of Restaurant Consulting Olha Nasonova explains that the average space of a public catering place is 250 sq m, for which the owner will have to pay UAH 6,000 a year. “This is not a serious burden,” she explains. The owner of the Varenichnaya Katyusha restaurant chain Maria Adonina agrees, saying that every restaurant of the chain pays UAH 30,000-50,000 taxes per month. “The increase of the tax burden is insignificant and I believe we can cope with it,” she says, smiling.

Also, the owners of commercial property are not scared by the possible increase of tax payments. Deputy General Director of the Russian company Otel Development (owners Radisson Blu Hotel Kiev Podol) Aleksey Nefedov said the amount of the tax of UAH 316,000 a year is not burdensome. “If the Ukrainian parliament adopts the law, we will observe it,” he said.

President of Double W Development Company Volodymyr Horashchenko is of the same opinion. He said that he understands the government’s goal to fill the nation’s coffers. “Business will compensate the current expenses only after the economic situation in the country improves,” he says.

First Deputy CEO of Mandarin Plaza Oleksandr Chernytskiy added that the tax of UAH 24.36 per sq m per year is not a burden for a shopping mall. “Successful projects can pay this tax without any problem,” confirms commercial real estate expert Vadym Zinchenko. He believes the new tax can be distributed between a shopping center and its tenants.

Small businesses will suffer

Not all market players will be able to withstand the new taxes. Nasonova claims that UAH 1,000 is a sizeable amount for small cafes in the regions. “They count every UAH 100,” she claims, adding that some of them may be forced to shut down.

As Capital wrote earlier, the restaurant market is going through rough times. Deterioration of the purchasing power of the citizens led to the shutting down of 50 of the previously operating 1,600 public catering venues in Kyiv over the period January to August.

Executive Director of the Star Hotels Association Dmytro Prokhorov says that with the last year’s occupancy at 70% many hotels in the capital and in the regions would have no trouble with an increase in the tax burden. “At the moment, however, the occupancy rate is around 30%, while the hotels simply cannot afford to raise prices for their services,” says Prokhorov, adding that hoteliers will be forced to downsize their personnel. This, in turn, will affect the quality of the services that they provide.

Shopping and business centers are also experiencing serious hardships: just as was the case last year, every third office in the capital is vacant, while the vacancy rate in the capital’s shopping malls doubled to 3.3%. Moreover, the tenants demand that the rent be calculated at the rate of UAH 8/US $1 or instead request additional discounts.

Zinchenko notes that many shopping centers in the regions are closed, but their owners will also have to pay the real estate tax. “For instance, one of the banks got the Ekvator shopping mall in Cherkasy, which is currently not operating,” he notes. Some shopping malls do not bring in any profits for their owners, while after the laws on new taxes enter into force their losses will only increase. This will force the owners of such real estate put it up for sale more actively.