The land of the brainy

16.08.2013 | Tatyana Ochymovska

Earnings on intellectual property grow faster than export revenues

Over the most recent years Ukraine has stably supported its title of a highly acknowledged smithy of so-called technicians. According to data in the research titled Exploring Ukraine IT Outsourcing 2012, last year Ukraine took fourth place in the world in terms of the number of certified IT specialists

Today, nearly 200,000 people work in the IT industry in Ukraine and the sector is rapidly growing. According to the data of PMR Research, the industrys growth in monetary terms in 2010 was a record-high 43.4%, in 2011 18.1% and in 2012 2.9%. The assessment includes products and services above and beyond export of software. Experts believe that over the next 6 years Ukraines IT segment could grow by 85% on conditions of average growth of 14%. This means that Ukrainian specialists will begin spending a greater share of the money allocated on programming services.

The sale of intellect will bring in for Ukraine higher official profits. According to Ukraines State Statistics Service, in Q1 2013 the inflow of hard currency into the country from the export of services increased by 8% to US $1.86 bn and the domestic deliveries in the telecom, computer and information services sectors demonstrated the highest growth dynamics. Indeed, the volume of these services increased by 34% or US $77.9 mn over Q1 2013. Royalties and other services associated with the use of intellectual property also saw significant growth of 73% or US $6.6 mn. Such a trend testifies to the growth in earnings of domestic companies from the use of trademarks abroad, though their growing turnover remains the main stimulus to the increase in the inflow of hard currency.

Chairman of the parliamentary Committee on Information Technologies Valeriy Omelchenko says Ukraine is in 5th place among the worlds leaders in the export of software products behind India, China, Russia and Brazil. At the moment, Ukraines IT industry annually exports US $1 bn in services and its earnings exceed US $1.5 bn. Such a high growth rate is thanks to the steady development of the information industry on the whole and the demand for Ukrainian experts in this field. Among domestic companies that receive royalties from non-residents are start-ups that offer new software products for smart phones and pads, as well as leading software companies in the west. This trend will continue to rapidly develop in the future, said head of the legal patent company IPStyle Maria Ortynska.

If the current rate of growth continues, by 2023 the volume of the Ukrainian IT market will be no less than US $10 bn, President of Luksoft and Director of Luksoft Ukraine Dmytro Kushnir forecasts.

Despite this, industry experts say that 160,000 Ukrainian IT experts (or 80% of the total number) work in the field of outsourcing. In terms of the volumes of offshore computer programming, Ukraine is in third place in the world. The situation could improve thanks to the passing of the law on tax breaks for this sector on January 1, 2013, which exempted businesses producing software from paying the VAT.

In addition to that, the profit tax for IT companies was set at 5% and this is only the start of tax reforms planned for this sector. Indeed, a new bill has been registered in the Ukrainian parliament On Amendments to the Tax Law of Ukraine Regarding the Particularities of Taxation of Software Manufacturers. The purpose of this law is to ease the burden on the payroll, which in this particular sector is nearly 80%. Reducing the tax burden will give incentive to IT companies to stop operating on so-called grey schemes, create legal jobs and more actively attract investments. The government believes this will give companies in the IT sector the opportunity to fulfill large-scale international turn key projects instead of working as sub-contractors to global software giants. Then every year the number of legal work places will increase by 35-40% and the industry will grow at a rate of 40-45%.

If that be the case, in the next 3-4 years the IT sector could account for nearly 10% of total GDP. Currently, this figure is only 1%. By the way, such an indicator can be achieved only on condition of the strict compliance with the law, which is often ambiguously interpreted by fiscal bodies, and maintaining the stability of the countrys macroeconomic situation. If the exchange rate of the national currency sharply falls and the political situation heats up leading up to the next presidential elections, companies may not only postpone investments in IT projects, but even roll them up.

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