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collection instead of an automatic regime. Weak growth of property income and entrepreneurial activities is an indicator of a shaky situation in small and medium business.
It is very hard for the government to lower its appetite for public expenditures amid the evolving election campaign for the March 2019 presidential vote. Therefore, we are likely to see growing pressure on business on the part of tax collection services.
6.1.1 Budget dynamics - specific issues...
Ukrainian President Petro Poroshenko will submit a bill to the Verkhovna Rada to create an exit capital tax to promote investment into domestic business, according to reports.
Ukraine's main donor the International Monetary Fund (IMF) has advised against the idea of introducing the exit capital tax. The fund is currently studying Poroshenko’s bill.
The exit capital tax says businesses do not need to pay a 20% profit tax if they invest this money in the development of their domestic businesses. For foreign investors, the innovation suggests that the tax rate will be fixed at 15%, whereas now companies pay up to 25% on profits, according to local media.
"This should not be the business of the president. This should be the business of our united team. Then we will win just as we won during the voting on the currency bill," Interfax news agency quoted Poroshenko as saying on June 4. "Do you agree that this will be our joint fight for Ukraine's economic freedom? Then let's start fighting."
Poroshenko also said that the rapporteur on the bill in the parliament would be his representative in parliament, Poroshenko's Bloc lawmaker Iryna Lutsenko.
The president added that the law on exit capital tax will come into force only together with other compensators for the state budget revenues. "I declare that this bill does not and will not cause any conflicts with the IMF, since this bill will come into effect only when respective compensators are provided for in the budget."
The IMF is concerned that the government is spending too much money and will not be able to hold the budget deficit to an agreed level of 2.5% of GDP. According to reports, the planned spending for next year – an election year – is currently already for a 4% budget deficit. Corporate profit taxes is one of the biggest earners for the budget so creating exemptions, which are not compensated, will only make the deficit bigger.
Poroshenko has previously postponed submitting the bill to the Verkhovna Rada.
Meanwhile, former Finance Minister Oleksandr Danylyuk said recently that the exit capital tax could become corrupt in two or three years if there was no a clear and transparent mechanism for its introduction.
"Not all business supports the exit capital tax, but the Finance Ministry has
38 UKRAINE Country Report August 2018 www.intellinews.com