Ukraine’s liquor industry ground to a halt in July due to a snare in the country’s excise tax policy and miscommunication with state alcohol monopoly, Ukrspyrt.
This has left Ukraine’s liquor producers with no way to get raw ethanol — and it threatens the jobs of thousands of Ukrainian workers.
“All delivery of ethanol from Ukrspyrt enterprises was blocked by the legislation,” said Yuriy Sorochinsky, the director of liquor company LVN Ltd. “All manufacture of alcohol stopped because of the absence of the main raw material.”
Ethanol is the key component for producing most alcoholic beverages. In Ukraine, it is produced and sold only by Ukrspyrt.
But Ukrspyrt says that it has no legal way to invoice ethanol (ethyl alcohol) deliveries due to contradictory provisions in the tax code, which went into effect on July 1. The enterprise also blamed government agencies for not clarifying how to use new electronic flow meters.
Unpleasant surprise
Speaking at a press conference at the Interfax news service office on July 10, Sorochinsky and multiple liquor business representatives said that the impasse was a heavy blow to the entire industry and threatens the livelihoods of thousands of workers. Companies have been unable to fulfill their retail and export contracts, incurring heavy fines.
According to liquor manufacturers, this is the first problem of its kind in the history of Ukraine.
Ukrspyrt’s legal counsel, Oleg Dmytrenko, told the Kyiv Post that the state enterprise had been aware of the problem many months in advance. He added that Ukrspyrt tried to sound the alarm to the Ministry of Finance and the State Fiscal Service as early as March, but has not seen any action from them until late June.
But Volodymyr Ostapiuk, the general director of vodka producers’ association UkrVodka, told the Kyiv Post that no one warned the liquor producers about the problem and they had no time to prepare.
“We were not connected to any working groups. We did not understand. No one addressed us,” said Ostapiuk. “On July 1: hello, business? We have a problem. You can’t get (ethyl) alcohol because of this, this and that.”
Boozy bureaucracy breakdown
The new tax rules on outgoing shipments fail to mention ethanol, according to Dmytrenko. However, the penalty for shipping alcohol without proper documentation is 200 percent of the cost of the goods or Hr 15,000, whichever is greater.
On top of that, Ukrspyrt was supposed to start using electronic flow meters for ethanol deliveries and send that information to the tax authorities. Dmytrenko said that the government did not offer any guidance on how these flow meters had to be procured or used and the state enterprise did not want to risk violating appropriation rules.
Previously, Ukrspyrt had to track all outgoing ethanol shipments with invoices. Liquor producers that buy this ethanol must also track incoming shipments with invoices. All of this paperwork is compiled in a state registry.
Ukrspyrt also said that the State Fiscal Service, which collects taxes, had not set up a way to collect the electronic data from the flow meters.
At the July 10 press conference, State Fiscal Service representative Olena Antipova denied that the tax authority was unprepared. She said that everything was ready and in working order and that the service did not receive any attempts from Ukrspyrt to register the data.
The Ministry of Finance, which is also looped into this process, did not comment in detail to the Kyiv Post. However, in an emailed statement, spokeswoman Olga Galytska said “the work to resolve issues with minimal losses for all participants is proceeding” and that “results will, of course, be made public.”
According to Dmytrenko, Ukrspyrt only received clarification about the flow meters on June 19. There are plans to install the meters on 16 production sites by August 1 and on all 40 production sites by October 1. Currently, Ukrspyrt has procured only nine flow meters, only four of which have even been delivered to production sites.
Despite Ukrspyrt and the government agencies saying that the issue will be solved as quickly as possible, Ostapiuk complained that the government agencies spent more time pointing fingers than creating solutions. No one took ownership of the problem, nor took the initiative to find its solution.
“All of them are pointing at each other: who didn’t do what,” said Ostapiuk. “Tell me, please, what does this have to do with the work of business?”
Ukrspyrt is the poster child for privatization — possibly Ukraine’s least efficient state enterprise. It has been slated to be privatized for longer than virtually anyone can remember, but no serious action in this direction has ever been taken.
In the past five years, Ukrspyrt has never had a true director, making due with a series of temporary acting directors.
In 2017, one of the company’s former acting directors was assassinated in Kyiv. The next year, his predecessor was detained in Romania in connection with the crime.
Many of Ukrspyrt’s production facilities also date back to the 1950s and use outdated equipment.
Kyiv Post office manager Olena Doskich contributed to this report.
