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Ukraine Unveils IMF-Backed Fiscal Reforms

by Tatiana Smolenska, Tax-News.com, Moscow

01 May 2014


Ukraine has unveiled a comprehensive program of economic reforms, backed by a USD17.01bn International Monetary Fund (IMF) loan which was approved on April 30.

The program aims to restore macroeconomic stability, promote sustainable growth, and strengthen economic governance and transparency. One of its key goals is to meet near-term fiscal obligations and gradually reduce the fiscal deficit, Reza Moghadam, director of the IMF's European Department, said. Authorities aim to stabilize budget revenue and embark on a medium-term fiscal adjustment path that distributes the burden of adjustment equitably.

Moghadam said that the program involves reforming tax administration to help reduce corruption and improving the business climate, to thereby achieve high and sustainable growth.

The government will enhance revenues by eliminating fraudulent tax evasion schemes, shifting to uniform (and thus less abuse-prone) excises on fuel, raising excises on alcohol and tobacco, and closing value-added tax loopholes, Moghadam said. The Government earlier announced that the corporate income tax rate, which was due to fall to 17 percent in 2015, and 16 percent in 2016, will remain at the current 18 percent rate indefinitely. Likewise, VAT, which was due to fall to 17 percent in 2015, will remain at 20 percent.

The IMF pointed out that without the reforms the combined deficit of the government and state-owned oil company Naftogaz would have reached an impossible-to-finance 12 percent of gross domestic product in 2014, undermining confidence in public finances.

The IMF approved a two-year Stand-By Arrangement (SBA) amounting to SDR10.98bn (about USD17.01bn) for Ukraine. The approval of the SBA enables the immediate disbursement of SDR 2.058bn (about USD3.19bn), with SDR1.29 bn (about USD2bn) being allocated to budget support. Future disbursements will be subject to a satisfactory performance review.

TAGS: VAT rates | tax | business | value added tax (VAT) | budget | International Monetary Fund (IMF) | tax reform | Ukraine | Europe

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