Doctors say that chronic diseases have a nasty habit of becoming aggravated in spring and the fall. Theoretically, the Ukrainian cabinet’s readiness to show a resolute approach to compensation for the value added tax can hardly be explained by this trend. But strangely, in practice everything looks precisely this way. In the spring of 2002, Vice Premier Vasyl Rohovy, after returning from Washington (visiting together with Finance Minister Ihor Yushko and NBU Governor Volodymyr Stelmakh on a lofty mission seeking another EFF tranche from the IMF board of governors), spoke of the pressing need to settle the VAT rebate issue. At the time it all ended with an important cabinet meeting followed by IMF’s refusal to loan Ukraine $250 million and all talk about introducing effective mechanisms of paying state VAT debts to enterprises gradually stopped.
This month the Ukrainian delegation, led by Vasyl Rohovy, plans another visit to the United States and in October the cabinet expects another mission headed by IMF Managing Director Horst Keller, Premier Kinakh said at a September 18 cabinet meeting dealing with the prospects of cooperation with international financial institutions, (IFI), instructing his subordinates to “deepen” and “optimize” that cooperation, so as to make it “equal and mutually advantageous,” answering “the requirements of national, economic, social, and structural priorities,” without “rude interference in Ukraine’s possibility to conduct a national social and economic policy... as previously.”
It is anyone’s guess whether by “rude interference” Mr. Kinakh meant the IMF and World Bank leadership’s dissatisfaction with how the Ukrainian government has gone about reimbursing VAT. Apparently, this must have been one of the main reasons for the IMF refusal to provide the next tranche in the spring. Also, the cabinet cannot afford to return from Washington empty-handed this time, very likely not only because the Kinakh cabinet wants to show a more stable hryvnia along with the GDP growth rate and other positive indicators to gladden the foreign investor’s heart. Viktor Poroshenko, chairman of the parliamentary budget committee, recently corr ectly pointed to a discrepancy between the cabinet’s third draft budget estimates and those of the National Bank in terms of monetary receipts from abroad ($1 billion and $500 million, respectively). Large sums are at stake that could help push the cabinet estimates through the parliament and even implement them next year.
Thus, placing the pressing issues of VAT compensation and cooperation with the IMF on the cabinet meeting agenda was quite logical – as was Finance Minister Ihor Yushko’s previous statement that in 2003 the cabinet proposes to reduce its VAT rebate arrears by UAH 800-1,000 million. Incidentally, the latter could become a sensation of sorts, among other things because a direct linkage between VAT compensation and the draft budget program for the next year was mentioned for the first time in recent Ukrainian history. Interfax Ukraine reports that Ihor Yushko proposes to form the compensation payment resource by reducing planned VAT returns in the 2003 state budget.
Ii should be noted, however, that the finance minister’s stand becomes vague at this point. The law on the value added tax allows including past-due state obligations toward enterprises in tax returns (an offset procedure of sorts). But maybe in this case efforts are being made to upgrade the administration of VAT (in fact, Ihor Yushko mentioned it in his presentation) by “budget stimulation of the State Tax Administration of Ukraine (as mentioned by Petro Poroshenko).
Be it as it may, the VAT compensation problem has once again become a stumbling block in Ukrainian-IMF talks. The cabinet is sure to be exposed to verbal attacks as much as it has been on the side of Ukrainian producers. Past-due VAT rebates over the past eight months have increased from UAH 2 billion to 2.2 billion, with the total payable amounting to UAH 6.4 billion, said Oleksiy Shytria, deputy chairman of the STA. Will those ten “specific assignments” (which he says the premier gave the ministries and agencies in order to secure tax payments in full) be of any help? The STA has published a list of 600 entities owing the heaviest VAT debts to the state and now threatened with bankruptcy (without mentioning the energy sector with more than half of the debt to repay).