Ukraine aims to reinstate tax collection to pre-war levels

London/Kyiv — Ukraine plans shortly to reinstate government tax collection to pre-war levels to comply with its IMF programme, scrapping exemptions and relief introduced since Russia invaded, says finance minister Serhiy Marchenko.

The move will generate extra government income of up to 10-billion hryvnia ($271m) for the rest of 2023 once Ukraine’s parliament has voted to restore it, Marchenko said in an interview late on Wednesday.

“We expect the restoration will be (voted on) at the end of June or the beginning of July,” said Marchenko, speaking on the sidelines of a two-day conference in London where Western donors have pledged billions of dollars more for Ukraine’s recovery.

“We can’t even cover our military expenditure with our taxes, but at least we can cover a part, and it gives us some space of manoeuvre.”

The plan is one of the commitments Kyiv agreed to in $15.6bn IMF loan programme approved in early April. However, that pales in comparison to Kyiv’s funding needs of billions of dollars.

Measures introduced to help Ukraine’s economy weather Russia’s invasion, launched on February 24, 2022, included lowering VAT on profits for some businesses and lower tax rates for some private entrepreneurs. It also cut some taxes and duties on fuel products. All are expected to end.

Marchenko said the government would also push for customs reforms in the second half of the year, including the introduction of a shared database with EU countries “to avoid illegal trades”.

Recovery efforts

Ukraine said it needs to secure almost $7bn for the next 12 months to finance recovery as the war destroyed homes, schools, hospitals and other critical infrastructure.

Prime minister Denys Shmyhal, speaking in London on Thursday, said he was confident that Ukraine would get that sum, based on pledges made at the donors’ conference.

The World Bank estimates Ukraine’s reconstruction will cost at least $411bn to cover damage suffered in the first year of the war, or twice Ukraine’s annual GDP before the war.

“We continuously discuss with donors and lenders how to move more rapidly from pledges to commitments in practical projects in Ukraine,” said Marchenko.

The government is also monitoring closely how proceeds from Russian assets can be used for reconstruction.

“This money could be part of the solution” for reconstruction, he said, emphasising Kyiv’s desire for a swift resolution of the issue.

Republican and Democratic US Congress members introduced legislation last week to make it easier for Ukraine to fund its war by using seized and frozen Russian assets. The Congress has approved more than $100bn in military, humanitarian and economic aid for Ukraine since February 2022.

Kyiv is asking the Financial Action Task Force (FATF), the world’s financial crimes watchdog, to blacklist Russia at a meeting this week in Paris, after the regulator suspended Moscow’s membership in February.

“We have provided facts and evidence for such a decision,” Marchenko said. “For us, if Russia is blacklisted, it will be a tremendous success.”

Russia’s central bank governor Elvira Nabiullina said on Wednesday there were no technical reasons for Russia to be added to the FATF’s blacklist. Any such step would be “politically motivated”.

Reuters