State budget of Ukraine in 2017: what to expect

Doing business in Ukraine: State budget of Ukraine in 2017 what to expect

Ukrainian President, Petro Poroshenko, signed the legislation regulating the Statw Budget in 2017 on Dec 26, 2016 which Verkhovna Rada, the Ukrainian parliament, voted for a few days earlier.

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The preliminary project of the national budget for 2017 was presented by the government several times throughout the fall. The final draft is now official and to become valid starting Jan 1, 2017.

We’ve put together some of the key aspects of the new government expenditure plan that businesses of all sizes will find most important.

Overall expenditure will be reduced

As Volodymyr Groysman, the Ukrainian PM, stated earlier, the focal point for the new budgetary plan is to align overall expenditure with overall revenue. To reach this goal, the government proposed a plan to reduce public spending to 42.8% of the GDP.

The main steps supporting this roadmap are reducing the quasi-fiscal expenditure (e.g., reducing banks’ recapitalization costs and Deposit Guarantee Fund and Naftogaz of Ukraine support).
Tax system to be simplified and investment climate to be improved
As part of the government expenditure for 2017, the President and the parliament approved additional legislative changes aimed at simplifying the fiscal system. In particular, the new changes will improve the investment climate in Ukraine by simplifying the tax system, increasing transparency and quality of tax administration and eliminating the widespread tax evasion schemes.

Most of the above goals are planned to be reached by the means of introducing an electronic taxpayer account that could be accessed online and will contain inclusive tax information as well as enable easier and more transparent communication with fiscal authorities.

Increased tax burden for small and middle business owners as part of the changed social policy

Starting from Jan 1, 2017, the minimal wages in Ukraine is doubled – up to 3,200 hryvnias (approx. $120). While a necessary and much called for initiative, the upcoming change will badly hit small and middle business owners who will have to cope with growing labor expense.

At the same time, small business owners who operate under the special (simplified) tax regime will have to make their social security payments even if gaining zero income in the current month/quarter. This already sent a wave of SMBs closing down at the end of 2016.
Some of the other key points include:

  • The national revenue is expected at 721.4 billion UAH (516.9 billion in 2016).
  • The national expense is expected at 790.4 billion UAH.
  • Real GDP growth is expected to reach 3%, with the inflation rate of 8.1%.
  • The dollar exchange rate is 27.2.
  • Support for the decentralization reforms by transferring more resources and responsibilities to the local communities.
  • Focus on developing a better transportation infrastructure, especially a road system, by assigning more resources from a special fund.
  • Increased taxes on gasoline, diesel fuel and liquefied gas by 25-48% (Avg.);
  • Increased taxes on alcohol and tobacco by 12-40% (Avg.);
  • A 2% pension duty on currency exchange canceled;
  • Increased government spending on centralized drugs procurement (up to 5.9 billion USD).

The new government expenditure plan doesn’t provide radical incentives and improvements for business. Rather, it aims at making the most of the following year in a condition of a significant budget deficit and laying the foundation for future growth.

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