Iryna Akimova, President Viktor Yanukovych’s economic czar, told a news conference jointly held with leaders of Ukraine’s business community on June 15 that her boss is serious about making reforms – starting with major changes in the tax code.
“The most important thing is that there is now political will in Ukraine for cooperation with international organizations, business and non-governmental organizations to carry on reforms necessary for that cooperation,” Akimova said.
Sparking some confusion, Akimova said that Ukraine had not yet received a much-reported $2 billion bridge loan from Russia to cover a budget deficit in the absence of aid from the International Monetary Fund.
However, Serhiy Lyovochkin, the president’s chief of staff and Akimova’s boss, confirmed during a July 16 briefing that a $2 billion commercial loan had been received recently from Russia’s Vneshtorgbank, and that it would be used to cover a budget deficit. ““This is a simple [commercial] loan,” he said.
According to Lyovochkin, there is an agreement to receive another $2 billion loan from Russia for a nuclear plant by Energoatom, over the next two years.
Nevertheless, both Akimova and Lyovochkin said the government is looking forward to further talks with the International Monetary Fund for a $15-19 billion loan. Lyovochkin admitted that talks had thus far been “very difficult,” adding that the fund had set difficult reform and fiscal prudence conditions. While some insiders said that IMF funding may not arrive until autumn, Lyovochkin and Akimova both expressed hope that the next round of talks with an IMF mission visiting Kyiv on June 21 could produce results.
On the domestic reform front, Akimova said Ukraine has been making headway. She said that parliament, which received the draft tax code late on June 15, is likely to consider and adopt it before a July 15 deadline. Adopting tax changes after this cut off period would put off tax changes for an additional budget year, possibly until 2012. But, Akimova stressed that the major tax legislative changes will not be rushed, giving businesses and lawmakers enough time study the bill, and offer revisions if necessary.
“I am sure deputies will have discussions of the code and will invite representatives of business to commission meetings,” Akimova said. “The process will be transparent and we will be open to all kinds of suggestions.”
The government also plans to save money by cutting some budget expenses. “There are some programs which got only 5-8 percent of the financing from what they require,” she said. “What is the point of financing them at all, when we can concentrate money on strategic programs and later catch up with the rest?”
She said that a law recently adopted on state procurements would, in line with IMF conditions, clean up the long corrupt process of how government spends money by ordering services and goods for everything from schools, hospital and regional government.
It could bring savings of $20 billion by eliminating corruption, she said, adding: “Around 50 percent of the Ukrainian economy remains in the shadows. That is why, among other initiatives in the tax code, we foresaw mechanisms which would cut many of those corrupt gaps.”
Like other government officials, however, Akimova did not elaborate on what tax law changes are included in the draft law.
But, according to the state program for economic reform from 2010-2014, reducing value-added taxes and reducing income taxes for business will likely be part of the new tax code. According to Finance Minister Fedir Yaroshenko, income taxes for business will be reduced from the current 25 percent to 20 percent in 2011 and to 17 percent in 2014.
Akimova also promised that the administration will create an integrated investment agency to support foreign investors willing to invest in Ukraine.
Business experts say they are optimistic about the prospects for Ukrainian economy if the promises are kept.
“These reforms are fully based on world standards and the experience of other countries. We do hope there is the political will in the current Ukrainian government to implement these reforms, for that process can not be easy,” said Jorge Zukoski, president of the Chamber of Commerce in Ukraine.
According to chairman of the chamber’s board of directors, Boris Krasnyansky, tax changes and a better investment climate will help greatly.
“According to the Doing Business Guide by World Bank, Ukraine held the 181th position out of 183 countries in transparency of its tax system. An average company in Ukraine pays taxes 147 times a year, while, for example in Hong Kong, it is only 4,” Krasnyansky said. “Ukraine is also drastically underinvested. The country received around $40 billion in direct investments since 1991. Russia gets about the same amount of money every year. The number in Poland, Czech, Hungary is also much higher than in Ukraine.”
Experts say that while Ukraine’s current leadership has been very receptive to the business community’s concerns, not all suggestions for improvement have immediately taken.
“We suggested value-added taxes for export services to be reduced to zero,” Krasnyansky said. “This will bring a lot of opportunities for foreign companies to outsource in Ukraine. The suggestion has not been taken but we will continue to advocate for this idea.”
Kyiv Post staff writer Svitlana Tuchynska can be reached at [email protected]
