Ukrainian President Petro Poroshenko has submitted to parliament a controversial draft law, known as the Exit Capital Tax, or ECT, the president said during a meeting with businesses on July, 4 at the InterContinental Hotel.
“This is honest in relation to the state, honest in relation to taxpayers, especially since economic growth also increases profit,” Poroshenko said.
The draft law – which was shepherded through parliament by Poroshenko’s former Roshen accountant and current member of parliament Nina Yuzhanina – was held up for four months because of the position of international partners such as the International Monetary Fund.
Back in March, the IMF warned that the hasty adoption of the law by parliament will affect its further cooperation with Ukraine and therefore further delay financial support. The IMF’s $17.5 billion lending program has been frozen for more than a year after disbursements of $8.4 billion, because of Ukraine’s unwillingness to meet the lender’s conditions.
“(The) submission of this proposal would take us further away from being able to complete the pending program review. We therefore strongly urge you not to submit this draft law to parliament,” the IMF wrote, according to a Facebook post by Dmytro Shymkiv, deputy head of the Presidential Administration, on March 13.
“The IMF feels that the benefits of the new rules are not clear cut, while the risks are that it could actually cut revenues. Experience in other countries (of a similar tax system) is not yet compelling,” said London-based analyst Timothy Ash. “The government should be focusing on much more important priorities, for example improving the efficiency of the state fiscal services.”
If approved, the new tax might bring to the budget less than the current corporate income tax during the first two years, but this would be reversed in the third year as income substantially increases, according to Ukrainska Pravda news agency. This would result in a 7 percent annual gross domestic product growth, instead of the current 2-3 percent.
Grigol Katamadze, president of the Ukrainian Taxpayers Association, says that the proposed law would be a positive improvement for the country.
“There was over a trillion hryvnias unpaid in corporate income tax, and this tax needs to be changed,” Katamadze said. “(ECT) will stimulate the Ukrainian producer as well as the foreign investor by allowing them to reinvest in production.”
