Ukraine’s parliament on Dec. 24 passed preliminary bills required for a vote on next year’s budget, with the aim of receiving the next installments of a $40 billion loan package from Western lenders.
The laws amended the nation’s tax and budget in ways designed to stimulate the troubled economy. Parliament was expected to vote on the budget after 11 p.m. on Dec. 24. The session followed a day of intense arguments over changes to the tax code.
To get the next installments of Western loans, in particular $1.7 billion from the International Monetary Fund and an additional $2.3 billion from others, Ukraine needs to pass a budget that limits the deficit to 3.7 percent of gross domestic product. That would mean spending of less than $40 billion next year.
Some tax changes passed on Dec. 24 include: an increase of excise taxes on ethanol products by 50 percent, on beer and wine by 100 percent and on low-alcoholic beverages such as alco-pops by 300 percent. Excise taxes on tobacco products will increase by 40 percent, whereas the tax on gas will rise by 13 percent.
Some of the more substantial changes have to do with the personal income tax, which will be 18 percent, replacing the current 15 and 20 percent rates. However, a 5 percent rate will remain on dividends.
Parliament also reduced the royalty tax for state-owned gas extractor Ukrgazvydobuvannya from 70 percent to 50 percent for the period of April 1 to Dec. 31, 2016. Royalty taxes for private gas extraction companies are to be reduced from 55 percent to 29 percent for extraction up to five kilometers deep, and from 28 percent to 14 for deeper extractions. The law will go into effect on Jan. 1 in hopes of stimulating domestic energy production.
Originally, the Finance Ministry and the parliament’s tax committee created two separate tax bills. The sides reportedly reached a compromise in early December, and Ukraine’s President Petro Poroshenko supported the move at the National Council of Reforms on Dec. 8.
However, lawmakers harshly criticized the draft law on Dec. 17.
The IMF then criticized parliament’s unwillingness to vote for the Finance Ministry’s version. Critics blamed the Finance Ministry for putting too much pressure on businesses, including the agriculture sector.
Member of parliament Tetyana Ostrikova, a co-author of the alternative bill proposed by parliament, said that the Finance Ministry’s proposal concentrated too much on tax rates at the expense of attacking corruption in tax collection.
Finally, after hours of negotiations and two breaks, parliament garnered 251 votes in favor of the controversial legislation.
