Ukrainian Economy in Brief – Newsletter, 4 July, 2023

The Verkhovna Rada adopted the Draft Law (DL) #8401 on tax policy and administration changes. As we reported in Issue 10 (June 26), taxpayers will be required to switch from the simplified tax system with a tax rate of 2 percent on August 1, 2023. Also, from August 1 the DL reinstates documentary inspections for risky businesses which work with excisable goods, gambling and financial services.

However, the DL suggests convenient conditions for the transition from a preferential 2 percent tax for entrepreneurs as well as the extension of the moratorium on inspections and tax incentives for small businesses that had a tax address in the occupied territories.

MPs have already started to submit resolutions to block the adoption of the DL. As of today, we are aware of at least one such resolution submitted by Dmytro Razumkov. But we still expect that the Parliament will unblock the DL and send it to the President to sign in mid-July, that’s why most of the provisions should come into force on August 1. 

The Verkhovna Rada adopted in the first reading the DL #9346-1 prepared under Structural Benchmarks #2 and #7 of the Memorandum with the IMF. The text was updated to fulfill obligations to the IMF regarding ad-hoc amendments to the state budget. It received 233 votes – just seven votes more than required for any general DL to pass. The DL was passed on June 28 and MPs have two weeks to submit amendments to the text before the second reading.

Other Topics of Interest

Ukraine’s GDP Growth is Downgraded, But It’s Doing ‘Marvelously,’ IMF Rep States

The IMF praised Ukraine’s government for steering the economic policy during wartime, even though the fund downgraded its growth outlook due to Russia’s strikes on energy infrastructure.

The National Bank of Ukraine met the structural benchmark in easing FX Restrictions. The NBU reported on its website that on 29 June 2023, the Board of the National Bank of Ukraine approved the Strategy to Ease FX Restrictions, Transition to Greater Flexibility of the Exchange Rate, and Return to Inflation Targeting. Preparing such a conditions-based strategy by the end of June was required under Structural Benchmark #11 of the memorandum with the IMF.

World Bank priorities development

Ukraine implemented the REMIT into national legislation. On June 30 the President of Ukraine signed the DL #5322 on prohibition of abuse in the wholesale energy market.

Other key economic decisions

The Cabinet of Ministers appointed the new Head of the Asset Recovery and Management Agency after G7 stated its concerns, and anti-corruption NGOs reported violations. On June 30 the Cabinet of Ministers appointed Olena Duma as the head of the Asset Recovery and Management Agency (ARMA). Transparency International Ukraine reported on its website that the NGO strongly opposed the election of Duma as the Head of ARMA because her professional background doesn’t allow her to meet the requirements for this position. G7 ambassadors also noted concerns of civil society.

Before the appointment by the CMU, one of the members of the Election Commission, Dmytro Ostapenko, withdrew his vote for Olena Duma. He emphasized that at the time of voting, he didn’t know crucial negative facts from her professional biography and insisted that the voting procedure was violated.

On June 30 President Zelensky signed DL #9342 with changes in payments to Ukrainian defenders. The Verkhovna Rada adopted the DL in the second reading on June 28. The main provisions of the DL fix monthly additional payments for soldiers and several military categories without the condition of establishing a salary cap for state employees as it was proposed by the amendment in the previous solution of the problem. All additional payments proposed in DL #9342 will be paid on the terms and in amounts established by the Cabinet of Ministers of Ukraine, i.e. as it is now.