Ukrainian Economy in Brief – Newsletter, 26 June, 2023

The Parliamentary Committee on Finance, Tax and Customs Policy recommended for the second reading the Draft Law (DL) #8401 on returning pre-war settings of tax policy. Taxpayers will be required to switch from the simplified tax system with a tax rate of 2 percent on August 1, 2023. The proposed amendments to the DL aim to reinstate documentary inspections only for entrepreneurs who meet clearly defined risk criteria.

The DL, in its second reading, also suggests an extension of the moratorium on inspections and tax incentives for small businesses that had a tax address in the occupied territories at the onset of the full-scale war. The DL is expected to be adopted this week and we anticipate that it will be signed in mid-July, coming into force on August 1. 

The updated DL #9311-1 on the corporate governance reform at the Gas Transmission System Operator (GTSO) has been submitted to the Verkhovna Rada. As we reported in the Newsletter from 20 June 2023, MPs Maksym Khlapuk (member of the Ukrainian Chapter of the Parliamentary Network of the World Bank and IMF) and Iaroslav Zhelezniak (Co-Chair of the Ukrainian Chapter of the Parliamentary Network of the World Bank and IMF) submitted the text which is fully agreed with the Energy Community Secretariat. You can find the key norms of the DL in the Newsletter from 13 June 2023.

The Budget Committee of the Verkhovna Rada has recommended in the first reading the DL #9346-1 prepared under Structural Benchmarks #2 and #7 of the Memorandum with the IMF. This DL was submitted by the Chair of the Budget Committee Roksolana Pidlasa and other MPs as an alternative to the government’s DL #9346. The alternative DL keeps changes to the budget code but excludes changes to the law on the state budget for 2023.

Other Topics of Interest

Duchess of Edinburgh First British Royal to Visit Ukraine Since War

Sophie met with survivors of sexual violence and torture during her visit, as well as women displaced by the war and children who were deported to Russia before recently being returned to Ukraine.

The reason for submitting the alternative DL was to comply with the law and fulfill obligations to the IMF regarding ad hoc amendments to the state budget. The DL is expected to be adopted in the first reading by the end of this week.

The National Bank of Ukraine (NBU) continues to ease FX restrictions. The NBU reported on its website that starting from June 21 residents, who meet NBU requirements to offset the risks of nonproductive capital outflows, have an opportunity to make transfers abroad to service and repay new external loans, the funds from which will be credited from abroad after 20 June 2023 to borrowers' accounts in Ukrainian banks. 

Other key economic decisions

 The Parliamentary Committee on Defense prepared for the second reading the DL #9342 on payment for military servicemen. The key norm remains the same: additional payments are provided for several categories of defenders and other categories related to the army and defense, without setting a salary cap for civil servants and SOE employees.

The amendments for the second include payments to prisoners of war and missing soldiers, an increase in additional payments for the wounded and military instructors, and also an extension of the duration of annual leave for conscript soldiers.

The Committee will consider the DL on June 27, and it will be voted on by the Parliament by the end of the week.

The President has signed the DL #8250 on the restart of large-scale privatization. The DL also suggests the optimization of the structure of the State Property Fund of Ukraine and simplifies the transfer of assets seized under sanctions to the SPFU.

The NBU is changing banks' approach to Politically Exposed Persons (PEPs). Banks will have to move away from a formal approach to setting the risk level of PEPs and give proper arguments in each individual case. 

The regulator has also increased the volume of financial transactions on all PEPs bank accounts from UAH 200,000 per quarter to UAH 400,000 per month, which is one of the conditions for not taking measures to trace the sources of PEPs’ wealth.