Tax increases did not compensate for their shortfall

Photo: Eugeniy Musienko

The government is failing to collect the projected amounts of tax revenues to the national budget. In January – October the proceeds from the taxes and fees to the general and special funds of the National Budget of Ukraine amounted to UAH 334.8 bn, which is 95.3% of the targets planned by the Finance Ministry. The shortfall is UAH 16.5 bn. The proceeds to the national budget in terms of planned indicators, including the introduced changes in the amount of UAH 362 bn, are provided by 92.5%, meaning a shortfall of UAH 27.1 bn.

At the same time, the situation is turning for the worse with every passing month. In October, the shortfall in tax proceeds increased by UAH 3.7 bn, exceeding UAH 15.1 bn by November, according to the operational data published by the State Treasury Service yesterday. With regard to the projected UAH 269.9 bn, the general fund of the national budget received UAH 254.7 bn in taxes. Specifically, the shortfall in tax deductions is almost UAH 11 bn and in customs duties – UAH 4.2 bn.

Taking with plenty to spare

A few days earlier the State Treasury of Ukraine published detailed statistics on implementation of the budget for the first three quarters of the year. As for taxes, the situation is ambiguous. For example, in January – September the national budget collected 22% less in corporate profit taxes than last year – in total UAH 33 bn. But, at the same time, UAH 26 bn in profit taxes was collected in advance. Despite this, thanks to advance tax collections the government managed to surpass the planned amount of income taxes collected over the first nine months of this year by more than UAH 1.5 bn.

However, due to the fact that many companies registered losses instead of profits, business entities are trying to get refunds from the national budget. The State Fiscal Service has already announced its plans to abandon the practice of payment of profit taxes in advance. It also promised to reimburse companies their money in the form of bonds or net it against other taxes. The problem here is by cancelling the practice of collecting taxes in advance, the fiscal service risks disrupting the plan of UAH 40.6 bn in profit tax revenues budgeted for the current year. For comparison, last year the national budget received more than UAH 57.9 bn in corporate profit taxes.

There is already a failure of plans for domestic taxes on goods and services. In particular, nearly UAH 5.7 bn of the value added tax (VAT) was not paid. The government’s expectations for certain taxes, which the authorities had to increase in order to pump up the budget, did not prove true either. For example, there is a huge shortfall of more than UAH 1.1 bn in the extraction tax, although in January–August the target for this tax was exceeded. Currently, the state services have collected slightly more than UAH 11.3 bn, though they planned to receive UAH 20.3 bn by the end of the year.

Perhaps the government may say that the most successful was the tax on hard currency purchases introduced in April at the rate of 0.5% of the transaction amount. Thanks to this tax the budget received over UAH 4.5 bn. Still, as it was previously stated by the NBU, introduction of the tax has drawn most transactions out of the interbank foreign exchange market, thereby creating pressure on the hryvnia exchange rate.

True pessimism

The government has no illusions about fulfillment of the tax and this year’s revenues from the customs tax. “We are experiencing a true decline in industrial production, consumption dropped, imports decreased and importers cannot buy foreign currency to deliver critical commodities, for example, oil products. All this suggests that the customs authority will collect less fees, including VAT payments,” said Chief of the SFS Ihor Bilous.

The shortage of inflows to the general fund of the national budget may reach UAH 12 bn, confirmed Finance Minister Oleksandr Shlapak. In October alone the national budget will fall short of approximately UAH 1.6 bn in revenues. This is mainly due to the current conflict situation in the Donbas region. For this reason, the state treasury failed to receive UAH 1.8 bn in September, said Bilous.

Earlier, Premier Arseniy Yatsenyuk said that the shortfall in taxes from the Donetsk and Luhansk oblasts reached UAH 3.7 bn over two months. This will have an impact on other regions. “As long as the troubles in the Donetsk and Luhansk oblasts continue, the echo of such troubles will affect Lviv, Kyiv, Mykolayiv and other cities. The government will help those budgets, which cannot achieve the expected rate of budget revenues at this stage in order to pay off all kinds of debts,” the premier promised.

Despite the shortfall in taxes, the Cabinet of Ministers will not agree to full-fledged budget sequestration, believes Budget Legislation Expert at the Association of Ukrainian Cities Oleksandr Slobozhan. It is more likely that at the end of the year the government will adjust the expenditures for certain sectors and managers of budgetary funds. Moreover, it is most likely that a number of government programs will not be funded, including the programs in the Donbas.