Members of the parliament blocked the annulment of tax preferences, leaving the army without financing

Photo: Reuters

The parliament of Ukraine shot down the government’s bill on the annulment of tax privileges and raising certain taxes, stipulated by the amendments to the Tax Code No. 4309a. According to calculations of the Ministry of Finance its adoption should have guaranteed in 2014 additional revenues to the national budget to the tune of UAH 11.4 bn and in 2015 — UAH 32.7 bn. But the number of votes of parliamentarians fell short even to include the document in agenda — only 206 deputies voted in favor of the 226 votes required.

The failure of voting for the Tax Code made impossible the consideration of bill No. 4308a in the parliament regarding the adjustment of the national budget for this year. Based on this document the Cabinet of Ministers proposed re-setting revenues of the state budget for 2014 in the amount of UAH 378.9 bn, expenditures at UAH 443.6 bn and the ceiling of the national debt at UAH 814.3 bn. «Amendments to the Tax Code should have ensured the revenue side of the revised state budget. Without adjustments to the Tax Code there is no sense in voting for the bill on amendments to the budget,» said VR Speaker Oleksandr Turchynov.

Precondition and fiasco

The day before the consideration of the bill by the parliament amendments to the Tax Code were discussed by the Committee on Issues of Tax and Customs Policies in the presence of Minister of Finance Oleksandr Shlapak, representatives of the State Fiscal Service and representatives of business. «The bill must be adopted as there are no funds in the state budget for financing military expenditures,» Shlapak said in his address to the committee that was repeated in the parliament the following day.

He said as of July the anti-terrorist operation (ATO) was financed from the reserve fund. «Taking into account the fact that at the moment there is only UAH 520 mn left in the reserve fund and the ATO is costing more than UAH 1.5 bn per month, we need to seek additional funding to continue the operation,» the minister explained.

He said the protracted military actions exhausted the financial resources allocated for conducting the ATO, which poses a threat of the termination of payouts to the Ukrainian servicemen. The situation gets further aggravated by significant worsening of the country’s economic indicators on the backdrop of the shortage of proceeds from the Donetsk and Luhansk regions.

The minister said currently the decline in GDP is around 3% and the fall in industrial output is more than 5%. «According to our calculations, the shortage of proceeds to the budget from the Donbas region alone amounts to UAH 16 bn. We are forced to seek alternative resources of financing,» the minister said. He insisted on adoption of the document in full, while the committee recommended voting in favor of the core of the document with following revision of certain provisions. The main argument of the committee is that the cancellation of privileges will deal a serious blow to businesses and will have serious repercussions. «Investors injected money into the agro-industrial complex taking into account that the preferences would be effective until 2017 and we need to find a way of protecting such investments. Besides that, the statements of the Cabinet of Ministers about increasing export of agricultural products in 2015 in the event of cancellation of preferences will remain just that,» said Chair of the VR Committee Vitaliy Khomutynnyk.

Deputies also did not agree to the reinstatement of the scheme of taxation of the extraction of oil and gas condensate, which was effective before January 1, 2013. Khomutynnyk believes this could lead to a reduction in the volumes of oil production and losses of oil extraction companies. In the framework of the amendments it was proposed to set fees for the exploitation of deposits in the extraction of oil and gas condensate not in percentage, but in monetary estimates using an adjustment coefficient. This envisaged an increase in the fiscal burden in this segment from 39% to 56% and would ensure additional proceeds to the budget in the amount of UAH 2.6 bn this year and UAH 6.3 bn in 2015.

Concessions not the savior

Despite the observations of deputies, the minister of finance was headstrong: «If you find alternative sources for filling the budget (instead of cancellation of preferences to certain sectors and raising taxes) and present your calculations, we are ready to review them».

The Minister of Finance made it clear that the review of the bill will not be postponed. As for the search for new compensators by deputies and representatives of business the minister gave them the deadline until the review of the bill in parliament, which was a day and a half.

VR Speaker Oleksandr Turchynov carried over the review of these documents to the evening session of the VR so that the deputies could revise the amendments, agree them and include them in the document. At the evening session Shlapak announced that the Ministry of Finance has changed its position. It was decided that the preferences for the agrarians would be left intact, albeit on condition that VAT refund for grain export operations would be cancelled at least until January 1, 2015. Notwithstanding, concessions on the part of the government did not facilitate adoption of the bill. Now the Cabinet has the right to put the bill up for repeat voting in the next parliamentary convocation.