Parliament on Feb. 17 supported a government directive and canceled a 1992 law granting lucrative tax breaks to certain joint ventures.
The decision will mainly affect a handful of joint ventures that together import most of Ukraine’s gasoline and diesel fuel. Analysts expect gas prices will rise by at least a third in the wake of parliament’s decision.
‘We think gas prices will go up by about 30 percent as soon as the matter is settled,’ said an analyst with a petroleum consulting firm who spoke on condition of anonymity.
Others predicted the increase in gas prices could hit the 40-50 percent range.
The analyst said traders will raise prices on diesel and gas once they are subjected to paying excise taxes, customs duties and value added taxes on imported petroleum products.
The widely criticized 1992 law was designed to encourage foreign investment. But fuel traders have exploited the law, senior government officials say, parlaying the privileges into undisputed dominance on the market while costing the state billions of hryvnas in unpaid taxes.
The 1992 law essentially exempted all joint ventures with foreign investment from all taxes passed thereafter, according to legal experts. Shortly after, the government revoked the law and replaced it with a better one. But the original tax privileges remained in place for JV’s formed during the time of the 1992 law’s existence.
The petroleum traders that stand to be hard hit by the measure actually sprouted up long after the 1992 law was revoked. But they qualified for the tax holidays by buying up joint ventures formed while the law was in place.
Parliament’s decision is expected to mainly to affect five petroleum traders that benefited from such stunts. The government estimates that those five companies accounted last year for some 77 percent and 52 percent, respectively, of gasoline and diesel fuel imports into Ukraine.
Those traders have lashed out at the cancellation of the breaks, warning that it could result in massive gasoline shortages and steep price hikes in Kyiv pump prices.
They point to last summer, when government threats to cancel the same tax privileges virtually stopped gasoline and diesel imports and led to pump prices nearly doubling in Kyiv.
Parliament’s decision becomes effective after President Leonid Kuchma signs it into law. Kuchma is widely expected to sign the document.
