national finance

This year the planned schedule of tax revenues has been irreversibly disrupted

This year the planned schedule of tax revenues has been irreversibly disrupted
Photo: Eugeniy Musienko

The government will not be able to fulfill the annual plan of budget revenues. The data for ten months of the year published by the State Treasury Service (STS) confirms this fact. In January-October, the general and special funds of the national budget received a total of UAH 289.4 bn. By the year’s end, the budget, according to the plan, should receive another UAH 93.7 bn. However, it will be extremely difficult to fill the gap seeing as the average monthly volume of tax revenues amounts to UAH 28.9 bn, particularly since the rate of tax revenues began to decrease in Q4 2014.

Digital reality

Earlier, Finance Minister Oleksandr Shlapak stated that the general fund of the national budget will fall UAH 12 bn short of the plan. The data of the STS confirm the words of the minister – the shortage for ten months is indeed UAH 11.9 bn. As for taxes, the situation is even worse. Head of the State Fiscal Service (SFS) Ihor Bilous estimates that this year the nation’s treasury will collect UAH 15.6 bn less in taxes than those planned in the national budget. Based on the results of ten months tax revenues to the general fund of the national budget are already UAH 12.3 bn short of the planned amount.

In November and December the government needs to collect around UAH 70 bn to meet the target. However, the figures provided by the STS give no reason to believe that this is possible. For instance, the shortfall of VAT in the general fund amounted to UAH 7 bn over ten months with UAH 120 bn planned for January-October. The planned proceeds from the excise duty on goods manufactured in Ukraine are short by more than UAH 1.5 bn. Also, proceeds from the personal income tax were UAH 1 bn short of the planned amount.

The government has not been successful in filling the nation’s coffers from the tax for the use of subsoil resources. Despite the increase in this tax rate in August, the government collected UAH 2 bn less rent than was planned – UAH 13 bn instead of UAH 15 bn. Overall, the government had planned to collect UAH 20.3 bn from this tax in revenues to the national budget.

Despite this, but not thanks to

At the same time, the revenues from excise duties on imported products have increased. This, however, is not an indicator of an increase in imports, which in fact decreased this year, rather the currency devaluation factor. Over UAH 5.2 bn was collected from the 0.5% fee on the purchase of foreign currency. The tax was introduced in April as a temporary measure. While the Ministry of Finance proposed extending it to next year, it may only apply to individuals, not banks.

Another attempt to compensate for the shortage of tax revenues was made through advance payments of business entities. Over 10 months the SFS collected even more than planned – UAH 35.3 bn instead of UAH 34.7 bn. At that, around UAH 23 bn are advance payments, according to the STS and they will have to be returned. Representatives of the government admit that they have gone a bit overboard, as the financial results of companies in 2014 are much worse than forecast results due to devaluation of the hryvnia and the hard currency limitations imposed by the National Bank of Ukraine.

Earlier, the SFS said that the excess of corporate profit taxes would be repaid to the companies by bonds or cross-cancellation of payments for other taxes. The volumes of corporate profit tax over the past several months confirm that the practice of advance tax collection has slowed down. In October and September the SFS collected UAH 2.4 bn and UAH 2.3 bn of this tax, respectively. Meanwhile, at the beginning of the year, for instance in January and February, the revenues from this tax amounted to UAH 3.6 bn and UAH 7.8 bn respectively.

Another option to save up money is to hold back VAT refund. The government will now use this instrument, as data of the STS indicates. The government must repay around UAH 13 bn in tax refunds from the budget by the end of this year. However, over ten months the amount paid out from the general fund was UAH 3 bn less than planned.

Tightening the belts

The unsatisfactory pace of filling the budget did not force the government to economize too much. Based on the results of the year the deficit of the national budget will amount to around UAH 88.3 bn, according to the Ministry of Finance. This is 29% more than the marginal indicator (UAH 68.564 bn) planned for this year. While cutting financing of the education, healthcare and environmental protection sectors, the government increased expenditures for defense and servicing of the national debt.

Representatives of the Ministry of Finance say that the national budget deficit increased due to the issuance of VAT-government bonds and government bonds with funds from their placement directed at subventions to the local budgets to compensate the difference in tariffs. The ministry, however, forgot to mention the money that was printed for Naftogaz of Ukraine, the deficit of which based on the results of the year will amount to UAH 103 mn.

The government had planned to reduce the deficit of the national budget through privatization hoping to earn UAH 17 bn from the sale of state property. However, having received only UAH 58 mn from privatization, the Cabinet of Ministers was forced to approve a decision on the emission of government bonds to cover the shortage.

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