Countries around the globe, particularly developing ones and transition economies, make widespread use of tax policy instruments to promote industrial and technological development. The actual effect of these instruments on business activity and government revenues, however, remains an open question. The World Bank defines three main “traps” of incentives (“selective interventions”): identifying candidates that merit special policy treatment, resisting rent-seeking, and ensuring that any intervention is costeffective.

The full-scale invasion put Ukraine before an unprecedented challenge of postwar economic reconstruction, which requires enormous financial resources, especially in the territories where combat took place and/or which were temporarily occupied. This highlights the use of special economic regimes to revive economic life in such territories and attract investments. However, Ukraine already has a rather controversial history of resorting to special economic regimes, from which appropriate conclusions must be drawn.

The purpose of the article is a critical examination of certain special economic regimes that have been or are being implemented in Ukraine (SEZ/TPD regime, the regime for significant investments, Diya.City regime), identifying the problems with these legal regimes and their potential in the context of post-war recovery (reconstruction) of Ukraine.

I argue that in the territories designated as areas for recovery by the Law “On the Principles of State Regional Policy”, it is appropriate to provide incentives to business entities that do not contradict Ukraine’s obligations to the WTO and the EU, but at the same time avoid the drawbacks that were present in the old SEZ/TPD regimes.

Meanwhile, I find the new Law “On State Support for Investment Projects with Significant Investments in Ukraine” inherited the drawbacks inherent in the SEZ/TPD regimes: overly complex and bureaucratic procedures, ad hoc regulation, lack of connection with the nationwide program of regional development, and a faulty fundamental idea – creating favorable conditions for individual investors instead of systemic efforts to improve the business environment.

From the perspective of regulatory design, the Diya.City regime receives a positive assessment, whereas tax incentives are only a part of a broader package with a dominant emphasis on ease of doing business. At the same time, I criticize the isolation of the IT sector as one deserving of particularly favorable business conditions compared to other sectors of the economy.

The general conclusion is that special economic regimes can serve as an instrument of post-war recovery, but should not replace efforts to ensure a favorable tax policy, regulatory simplicity and transparency, investor protection, and stability of business conditions for all.

Bibliography

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Encyclopedia

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Newspaper articles

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5. ‘V Ukraini pryskorylasia infliatsiia: na shcho naibilshe zrostaiut tsiny’ (Slovo i Dilo, 12.10.zhovtnia 2022) <https://www.slovoidilo.ua/2022/10/12/novyna/ekonomika/ ukrayini-pryskorylasya-inflyacziya-najbilshe-zrostayut-cziny> (accessed: 22.03.2023) (in Ukrainian).

6. ‘VVP Ukrainy skorotyvsia bilsh nizh na 37 % – Derzhstat’ (Slovo i Dilo, 09.09.2022) <https://www.slovoidilo.ua/2022/09/09/novyna/ekonomika/vvp-ukrayinyskorotyvsyabilsh-nizh-37-derzhstat> (accessed: 22.03.2023) (in Ukrainian).

Websites

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8. ‘Stan ta potreby biznesu v umovakh viiny: veresen, 2022’ (Tsentr rozvytku innovatsii, 12.10.2022) <https://cid.center/state-and-needs-of-business-in-war-september-2022> (accessed: 22.03.2023) (in Ukrainian).