Updated at 18:12,15-06-2018

Lukashenka to sign revolutionary IT regulation package

Vadzim Smok, BelarusDigest

Lukashenka to sign revolutionary IT regulation package
President Alexander Lukashenka, High Tech Park director Usievalad Jančeŭski, and IT businessman Viktor Prokopenya. Photo: president.gov.by
On 13 December, at the plenary session of the 2nd Congress of Belarusian scientists, Belarusian President Alexander Lukashenka promised to sign the decree On the Development of Digital Economy before the New Year.

The fathers of the decree call it revolutionary, because it includes a number of unprecedented measures to liberalise the way IT businesses operate. It aims to turn Belarus into a regional leader in the development of cutting-edge areas, such as artificial intelligence, big data, autonomous cars, and blockchain technology.

Both officials and businessmen work to promote it inside the country and with foreign partners, creating perhaps the first case of state-business partnership on such a scale in Belarusian history.

The critics accuse the package of privileges to only one sector, lack of public discussion, and playing with poorly understood blockchain technology. In the meantime, Belarusian society silently waits to see what innovations will come their way.

The revolutionary decree

On 11 December, President Alexander Lukashenka held a meeting to discuss the draft decree On the Development of Digital Economy. The talk featured well-known IT businessmen and government officials.

According to its developers, the document contains legal solutions that are a breakthrough not only for Belarus and its neighbouring countries, but also for the most developed countries of the world. Lukashenka himself calls it revolutionary.

The decree aims to turn Belarus into a regional centre of attraction for talented specialists, successful companies, and international corporations. The hope is to make Belarus at least a regional leader in the development of cutting-edge areas, such as artificial intelligence, big data, autonomous cars, and blockchain technology.

Apart from development of the IT sector, the package includes other important goals: creating conditions for the transformation of traditional industries, and a new educational approach in schools and universities, where students will be able to master at least one foreign language at a high level.

The success story of the Belarusian High Tech Parkdespite its growing revenuehas been stagnating due to its orientation to outsourcing and lack of its own products. This was the most probable reason to remove the parks founder, Valier Tsapkala, and replace him with Usievalad Jančeŭski as the new park director in March 2017. Nearly at the same time, President Lukashenka visited the High Tech Park and met with EXPCapital company head Viktor Prokopenya, one of the main promoters of transforming Belarus into an IT-country.

According to estimates of the decrees designers, by 2030 the Belarusian IT sector will grow to 100,000 workerscompared to 30,000 now. Export revenue is projected to grow to $4.7bn a year compared to $1bn today, and foreign investments to increase to $4bn from its current $800m level.

Belarus has never boasted a favourable business climate. Although, a number of recent projects with foreign capital have proven successful. This time, the government seems determined to seriously change the situation with unprecedented novelties and adopt some of the worlds best practices.

What is so great about it

As the officials put it, the package will contain minimum strict formulations to provide a flexible basis for the future development and elaboration of regulations. Most important ideas of the decree concern the following.

Foreign companies, which provide marketing, advertising, consulting and other services to the residents of the High Tech Park, will be exempt from paying value-added tax (VAT). For example, today in order to sell a mobile app, a company needs to buy ads from Google and Facebook. For every $100 allocated for advertising, they have to pay $20 VAT and $15 foreign operators income tax. Companies in other countries do not pay these taxes, and therefore have a big advantage over Belarusian firms.

The decree also removes a number of barriers in electronic transactions. High Tech Park residents will have the right to open accounts in foreign banks and conduct monetary transactions without any regulator permissions.

The new system will also introduce aspects of British law and international business standards. Ahead of the publication of the systems conceptual design, legal company Aleinikov&Partners revealed they are studying the experience of venture investment world leadersSingapore, Israel, and USAin cooperation with the Belarusian government.

High Tech Park residents will receive privileges for recruitment of foreign specialists. Foreign hires will not need to obtain work permits and will have the right to work in Belarus without visas.

Cryptocurrencies received special attention in the document. It fully legalises digital currency tokens and creates conditions for engaging cryptocurrencies into circulation. Tokens can be mined, bought, inherited, exchanged for money, and involved in other similar operations. At least until 1 January 2023, the government exempts this form of activity from taxes. However, individuals may only perform all operations via High Tech Park residents to prevent fraud.

Critics of the decree and responses to it

The generally positive hype surrounding the decree was somewhat dampened by critics, many of whom agree with the assessment of famous independent economist Siarhiej Čaly. Shortly after his Economics in Laymans Terms show on TUT.by online TV, where he discussed the potential negative sides of the decree, the top manager of IT company VPCapital, Mikalaj Markoŭnik, published a response to the criticism.

Čaly accused the fathers of the decree of not engaging in any public discussion. The High Tech Park administration, however, claims that it chose a different approachconsulting with the industry and expert community. It collected the opinions of all park residents, as well as certain IT companies outside the Park, and consulting companies. Information that the High Tech Park was working to propose a draft decree was public and anyone can still submit ideas and initiatives.

Critics also point to the fact that the special regime does not apply to the entire country, but only to residents of the High Tech Park. Proponents respond that the decree does not in fact offer new tax benefits, but rather can be regarded as a de-bureaucratisation test. If successfully passed, it is likely that this approach will be extended to the rest of the economy.

Next, critics claim the boosting of IT sector could potentially destroy the rest of the economy by drawing away talent from other sectors. But Markoŭnik argues that brain-drain to foreign IT companies has long been an issue for the Belarusian economy. He says further development of the High Tech Park will prevent brain-drain, because people will at least remain inside Belarus and work within its economy.

Siarhiej Čaly considers cryptocurrency a bubble on a global scale and warns against any investment in it. His opponents argue that regulation of cryptocurrencies in the decree is not simply a tribute to current trends, but a reflection of the way the market is headed. Blockchain and cryptocurrencies certainly do present one of the main trends in the IT world. Although some analysts believe the trend is only beginning, this does not mean that the state should wait at the sidelines.

Despite certain critics, most stakeholders remain optimistic. The decree represents unprecedented liberalisation of one of Belaruss most important economic spheres. Both officials and businessmen are working to promote it inside the country and with foreign partners, creating perhaps the first case of state-business partnership on such a scale in Belarusian history. The coming year will demonstrate whether Belarus can indeed become a Slavic Hong Kong, as fathers of the decree wishfully put it.