Ukraine plans to restore pre-war tax system by July -Finance Minister

LONDON/KYIV, June 22 (Reuters) – Ukraine plans shortly to reinstate government tax collection to pre-war levels in a push to comply with its IMF programme, scrapping exemptions and relief introduced since Russia’s invasion, Finance Minister Serhiy Marchenko told Reuters.

The move would generate extra government income of up to 10 billion hryvnia ($271 million) for the remainder 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 part of commitments Kyiv has agreed under a nearly $15.6 billion International Monetary Fund loan programme approved in early April. However, that pales in comparison to Kyiv’s funding needs which amount to billions of dollars.

Measures introduced to help Ukraine’s economy weather Russia’s invasion, launched on Feb. 24, 2022, have included lowering value-added tax on profits for some businesses and lower tax rates for some private entrepreneurs. It also cut some taxes and duties on fuel products.

They are all now expected to end.

Marchenko said the government would also push for customs reforms during the second half of the year, including the introduction of a shared database with European Union countries “to avoid illegal trades”. The minister did not elaborate.

RECOVERY EFFORTS

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

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

The World Bank has estimated Ukraine’s reconstruction will cost at least $411 billion to cover damage suffered in the first year of the war – two times Ukraine’s pre-invasion GDP.

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

The government is also monitoring closely how proceeds from Russian assets could be used for reconstruction in the future.

“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 members of the U.S. Congress introduced legislation last week that would make it easier for Ukraine to fund its war by using seized and frozen Russian assets. The Congress has approved more than $100 billion in military, humanitarian and economic aid for Ukraine since February 2022.

Kyiv is also asking the Financial Action Task Force (FATF), the world’s financial crimes watchdog, to blacklist Russia at a meeting this week in Paris, a further step 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, and that any such step would be “politically motivated”.

($1 = 36.9250 hryvnias)

Reporting by Jorgelina do Rosario, editing by Karin Strohecker and Gareth Jones

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