The Cabinet of Ministers may resume issuing VAT bonds next year. The state may choose to take this step to help business solve the problem of this tax’s arrears. Prime Minister Mykola Azarov announced the intention to discuss and bring into play this mechanism the other day in response to a proposal Dmytro Firtash, chairman of the Federation of Ukraine’s Employers (FRU), made at the congress of this organization. “The government is studying the possibility of issuing securities. In all probability, this will be done on January 1 [2013. – Ed.]. I think this decision is possible and will suit the majority of those who work for export and face problems with floating assets,” the prime minister said.
Business has made this proposal because VAT refund is a very acute problem now. According to Firtash, the state’s overall value added tax debt to business is 40 billion hryvnias, while the profit tax overpayment comes to 16 billion hryvnias. “It is clear that we cannot demand that all the money be refunded, for this will upset the budget. So we suggest reverting to the practice of VAT bonds. This is not an ideal solution. Businesses will at least be able to plan their activities, and the state will use their money at a certain cost. Business will thus have an opportunity to use these securities as collateral for loans,” the FRU chairman said on behalf of the business community.
Although almost 500 entrepreneurs from various regions of Ukraine, who gathered at Ukrainian Home, applauded to the premier’s words about the likely return of VAT bonds, the comments of them and experts show that this step will only partly make it possible to solve the VAT refund problem.
In the opinion of Oleh Boiaryn, chairman of the board of directors of Atoll Holding PLC and chairman of the supervisory board of Eurocar PLC, VAT bonds is not a way out of the situation, for their application will rob business of an average 30 percent of VAT arrears.
By contrast, Yevhen Chervonenko, ex-minister for transport and telecommunications, former first deputy chairman of the Kyiv City Administration, told The Day that VAT bonds are a step forward. In his words, they can be sold and be used as collateral for a bank loan. So Chervonenko is convinced that when it is a life-or-death situation, business should accept this proposal, for there are too few realistic options so far.
“Naturally, business still wants the VAT to be refunded by way of money,” ex-minister for economics Viktor Suslov told The Day. Yet, in the current conditions, VAT bonds will help business at least partly solve the problem of floating assets replenishment. If the budget is and is going to be short of “live” money, VAT bonds is a good option because they can be used as collateral for a banking loan or be sold at a certain discount and, hence, fetch some money. In other words, he says, the bonds are better for business than nothing.
