The Cabinet move to cancel hundreds of resolutions granting tax breaks to a host of companies touted as a move to establish market fairness
blishing market fairness,” the Cabinet in the first week of May canceled hundreds of resolutions granting tax breaks to a host of companies. The resolutions had been instituted by the government of Valery Pustovoitenko, Ukraine's previous prime minister.
On May 5, the government annulled 258 previous resolutions granting tax privileges to various businesses. Most of the resolutions were issued last year and in 1998. Two days later, on May 7, the government added another 23 resolutions to the list of those annulled.
According to the Cabinet's press service, most of the annulled resolutions granted breaks on customs duties on imports. Some of the resolutions also relieved businesses from paying value added taxes and excise duties on imports, while others permitted various companies to delay the payment of taxes, or pay the taxes in installments, according to statement released by the government along with its May 5 resolution.
With the hryvna devaluing rapidly last year and in the second half of 1998, delays in paying taxes amounted to a considerable tax cut in dollar terms for importers.
First Deputy Prime Minister Yury Yekhanurov said on May 5 that while drafting the resolution, the government had encountered fierce resistance from the enterprises concerned.
That's hardly surprising, given the amount of money at stake.
Though it is difficult to estimate the total value of the tax breaks granted by the government in 1998 and 1999, the total sum of taxes on which payment was deferred amounted to a staggering Hr 3.6 billion. Three orders alone postponed tax contributions to the budget worth Hr 130 million by between six and 36 months, according to the government statement.
On the face of it, the government's actions seemed to back up its declared goal to “cross the word ‘privilege' out of Ukraine's vocabulary.”
“Our decision on canceling the previous Cabinet's resolutions is extremely important,” said Yekhanurov. “We are sending a signal to all subjects of business activity that we believe the same rules should apply to all.”
Analysts remain to be convinced of the government's reform credentials, however. The government's May 5 and May 7 resolutions should be viewed as a formal statement of the government's intent, rather than an attempt to introduce a level playing field in the market, they said.
Analysts said most of the cancelled resolutions dealt with contracts that have already been completed, and the government's latest resolution was unlikely to have a retroactive effect on these deals.
Viktor Skarshevsky, director of economic programs at the Ukrainian Center for Economic and Political Studies – an independent think tank – said it is no coincidence that the May 5 and May 7 resolutions were issued on the eve of Yushchenko's latest visit to the United States. In Washington, Yushchenko held talks with senior U.S. government officials and the leaders of Ukraine's most important creditors – the International Monetary Fund and World Bank. During the talks, U.S. officials again urged Kyiv to accelerate reform and root out corruption.
“Unfortunately, it looks more like a pure PR campaign,” said Skarshevksy. “It's just an attempt to paper over the past.”
Skarshevsky said he doubted the government was serious about this latest reform, since it was unable even to say how much extra money would come to the government as a result of the cancellation of the tax break resolutions.
And other analysts said the government could choose much more effective ways to reduce privileges, such as eliminating tax breaks granted to metallurgical companies. The government should also cut the substantial tax breaks on critical imports – commodities deemed essential to the health of the economy – analysts said.
Tatyana Sytnyk, an analyst with International Center for Policy Studies, said tax breaks on customs duty for gas importers and payment postponement for agricultural fuel suppliers were among the few tax break resolutions that were affected by the government's May 5 and May 7 resolutions.
Though they disagreed with the government's methods, analysts said the Cabinet's move to create equal conditions for market players was a step in the right direction.
“It's good that the government is trying to even up the rules of the game,” said Skarshevsky.
