Ukraine fails to adopt compromise tax reform

Ukraine fails to adopt compromise tax reform
By bne IntelliNews December 17, 2015

The Ukrainian parliament failed to support a hard fought-over compromise tax reform plan on December 17, a step that was needed to end a dispute with the International Monetary Fund (IMF) to allow the country to receive billions of dollars in credits. 

"We will continue this work next year to reach a decisions," Interfax quoted parliamentary speaker Volodymyr Hroysman as saying. "A working group from professional representatives of the factions will be created with the direct participation of the prime minister," he added.

The rejection of the bill is a setback to efforts to rebuild Ukraine's state finances and economy after a pro-Moscow insurgency that began in April 2014 destroyed much of the country's industrial infrastructure in the east.

The Finance Ministry said earlier it would prepare a compromise tax due under the reform proposal in order to secure the IMF's support and allow the release of $1.7bn of funding. Previously, the parliamentary tax committee offered lawmakers its own reform draft but this was rejected by the multinational lender. Lawmakers in the Verkhovna Rada assembly also refused to support an initial reform plan proposed by the Finance Ministry.

According to the speaker Hroysman, parliament could now revise the current tax code "for the sake of balancing the budget for 2016" after a meeting between the parliamentary factions and  Prime Minister Arseniy Yatsenyuk. The speaker added that that the new tax code should be a joint product of the government and parliament.

The IMF stalled the disbursement of the third tranche worth $1.7bn of a $17.5bn bail-out programme agreed in March after the failure to agree on details of Kyiv's tax reform. Further funding of $2.3bn from other international donors is also tied to that IMF tranche. This includes a $1bn Eurobond issue under US guarantees, a $670mn tranche of macro-financial assistance from the European Union, and a $300mn from Japan.

Yatsenyuk had urged parliament to adopt in the first reading the tax code draft drawn up by his cabinet, to finalise the bill and to put it into effect during 2016 after "broad public consultations", his media office reported on December 17.

"We offer that the Ukrainian parliament in synergy with the government should finalise the draft governmental changes and enact them neither from 1 January or 1 February," Yatsenyuk said. But the bill should only take force in 2016 "after long discussions, after wide public debate, after Ukrainian business is prepared and accepts these tax changes", he added.