Major private and state-owned enterprises underpaid taxes to the national budget

Photo: PHL

The general downward trend in the pace of economic growth affected large businesses. This year major companies paid to the national budget less taxes than last year. In January – July large taxpayers paid to the budget with UAH 82.2 bn, which is UAH 5.2 bn (or 6%) less than over the same period last year, according to the information Capital received from the press service of the State Fiscal Service (SFS). The share of large businesses in the total amount of taxes paid to the national budget is 71%. Overall, there are 2,121 registered major taxpayers in Ukraine. These, according to the current legislation, include companies with annual revenues of more than UAH 500 mn or the amount of taxes paid for the year exceeding UAH 12 mn.

Under general influence

The decline in proceeds from major businesses coincides with the reduction in revenues to the national budget from taxes, which has been observed since the beginning of the year. Head of the SFS Ihor Bilous says in January – August the service ensuring proceeds in the amount of UAH 270.5 bn to the consolidated budget, including UAH 212.2 bn to the national budget. These figures have remained on the same level as last year.

“With a view to the situation in the eastern regions, the general fund of the national budget fell short of UAH 4.4 bn compared to the same period last year,” said Bilous. The total payments to the general fund of the national budget amounted to UAH 198.9 bn, which is UAH 3.1 bn (or 1.5%) less than over eight months of last year.

The main reason for such dynamics is the economic decline, the catastrophic drop of almost all indicators of economic development in the eastern regions of Ukraine and the shutdown of business activities. The Ministry of Economic Development and Trade (MEDT) reports that in January – July the decline of industrial output was 5.8% due to the lower external demand and foreign trade restrictions in Russia. Based on the results of the first half of 2014, the losses of large and medium-size enterprises increased by approximately 30% (UAH 65.5 bn) to UAH 295.7 bn.

In the east, the situation is much worse. In particular, in the Donetsk oblast the drop in production in construction in January – July was 27.5% and in the Luhansk oblast – 29.3%. The decline in industry reached 14.7% and 13%, respectively, and reduction of goods turnover in the Luhansk oblast was registered at 19.6%, in Donetsk oblast – at 12.2%.

The MEDT predicts that by the end of the year the situation will not improve. The decline in GDP is expected to reach 6%. It will be followed by the decrease in all major types of economic activity, including industry by 7%, construction by 13% and transport by approximately 8%. Even in such traditional driving forces of economic growth as the agriculture and trade sectors, a decline of 2% and 10.7%, respectively, is forecast by the end of the year.

Habitat

According to SFS statistics, the eastern regions of Ukraine are not the most popular among major taxpayers. The majority such enterprises are located in Kyiv and the Kyiv oblast. The Donetsk and Dnipropetrovsk regions are in second and third places. The greatest number of them is concentrated in the wholesale trade and processing industries. The SFS did not reply to Capital’s question regarding the list of companies that have paid the largest amounts of taxes to the national budget, referring to the fact that the Tax Code reserves taxpayers’ “rights to non-disclosure of information about such payers without their written consent by the supervisory authority”. Last year, according to reports from the SFS, the major budget revenue-generating enterprises were such state-owned companies as Naftogaz of Ukraine, Ukrnafta, Ukrgazvydobutok, UkrGaz-Energo, Energoatom and Energorynok.

This year, according to Bilous, all major enterprises have problems with payment of taxes. “Enterprises in the tobacco and alcohol industry have reduced tax payments to the national budget due to the decrease in output of their products,” he said. He added that the most striking tax arrears were observed in state-owned companies. “The state monopolies, such as Naftogaz of Ukraine, Ukrainian Railways and Energoatom reduced their tax payments to the national budget. This trend has been observed since the beginning of the year,” says the head of the SFS. As a result, the entire public sector is now in the “red zone” and nobody can boast the high level of payment of taxes.

Head of the Secretariat of the Council of Entrepreneurs at the Cabinet of Ministers Andriy Zablovskiy says the major taxpayers can be divided into three groups. “The first group consists of large multinational companies, which despite the deterioration of operations and general economic conditions, still pay taxes. The second is made up of Ukrainian companies, which started experiencing difficulties during the decline of the economy and decided to reduce their tax base by reducing production,” said the expert.

The third group consists of companies which are currently challenging their tax arrears in courts not waiting for the adoption of the bill on a tax compromise. “Seeing as the economic downturn is expected to last to the end of this year, based on results of the third and the fourth quarters the decrease in tax collections will become deeper than based on the results of six or seven months,” says Zablovskiy.

Military tax

Among other things, major companies have become one of the main sources of proceeds from the military tax (1.5% of citizens’ incomes), introduced on August 3. Based on the official statistics, in August the national budget received UAH 289.8 mn in proceeds from this tax. The largest amounts were received from taxpayers registered in Kyiv (UAH 52.2 mn) and from large companies (UAH 44.7 mn), said the SFS press service. By the end of the year the Ministry of Finance plans proceeds of UAH 2.9 bn in military tax. For now the SFS is optimistic. Bilous says it is expected that starting in September the average monthly proceeds to the national budget from the military tax will reach more than UAH 500 mn.

However, whether the hopes of the fiscal bodies are justified depends on what they are expecting to get. “There are two possible ways of calculation – accounting and economic. The accounting method is based on the fact that August was a holiday month – in July people were paid their holiday allowances and in August parts of their salaries were paid, so August may not be an indicative month,” explained Vice President of the American Chamber of Commerce in Ukraine Taras Kachka. The economic way of calculation factors in the possible increase of people’s incomes. “If companies start raising wages at least based on the rate of inflation, the proceeds from the military tax will increase, respectively,” said the expert. Admittedly, in conditions of the economic recession and increasing losses of enterprises, there is no point in relying on this factor.