Ukraine’s government launched a campaign on March 14 to recover what it claims are tax revenues owed by some of the largest industrial and financial groups.
Ukraine’s government, led by Prime Minister Yulia Tymoshenko, launched a campaign on March 14 to recover what it claims are tax revenues owed by some of the country’s largest industrial and financial groups.
State Tax Administration Chair Serhiy Buriak accused top firms such as System Capital Management, Privat, Interpipe, Industrial Union of Donbass, Motor Sich and Smart Group of buying so-called technical shares in bankrupt enterprises, thereby making insufficient payments on profit taxes of almost $1.5 billion.
The policy is a repeat of Tymoshenko’s attempts to enforce tax collection during her first stint as prime minister in 2005 and could shake investor confidence, observers said.
“Such actions will serve, to a certain extent, as a warning sign that it is best not to rush in now and wait for some time,” said Volodymyr Fesenko, a Kyiv political insider.
Tymoshenko is known for putting tax pressure on big business, analysts said.
This time around, her government needs money for the budget, including the implementation of large-scale social programs and increasing budgetary funds, Fesenko said.
If investors see that certain groups are being targeted in such a way, while others are not, the investor confidence in Ukraine will be influenced in a negative way, analysts said.
“The state needs to keep equal rules of the game for everyone,” said Yevgeniya Akhtyrko, macroeconomic analyst at Kyiv-based investment bank Galt & Taggart Securities. “For an investor, equal rules of the game are more important than giving someone preferences.”
This situation will not add anything positive to the overall image of Ukraine’s investment environment, nor significantly affect investors’ perceptions, said Andrey Ivasiuk, a Millenium Capital analyst.
Several of the companies accused of tax evasion, including Interpipe, have denied allegations of wrongdoing, according to news reports.
During the last three years, the Ukrainian stock market has been filled with shares, investment certificates and bills of exchange, which were actually issued by fictitious companies and were not supported with any real assets, according to the Main Administration of State Tax Police’s March 19 report.
Tax police analysts labeled these shares as “technical,” and businesses use these securities to conceal true profits.
The tax militia has revealed more than 200 companies that issued technical shares whose nominal value totaled about $5 billion.
