Ukrainian lessors still
blighted by bribery and intimidation.
Go deeper with GlobalData
Ukraine’s tax system is rife with
bribery and ambiguity and consequently remains a thorn in the side
of most local leasing companies, despite efforts by local tax
authorities to improve the system.
However, the focus in recent weeks
has been on problems to do with the country’s VAT system.
Historically, the government has
been slow in returning input VAT paid by lessors and other
taxpaying companies to the tax authorities.
Now, in a seemingly bizarre – yet
not entirely unique – move, Ukraine’s Cabinet of Ministers has
published a resolution, one of the consequences of which will be
that none of this VAT will be paid.
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By GlobalDataIt is not all bad news, however. In
exchange for not refunding this VAT, the resolution offers
taxpaying companies the opportunity to receive, free of charge,
what the government is calling “government domestic loan
bonds”.
Leasing companies, therefore, will
at least get back the money owed to them by the government, albeit
through this bond rather than the VAT repayment route. The value of
the bonds should match the amount in unpaid VAT arrears.
The bad news is that lessors will
not get the money all in one lump sum. The bonds, while offering a
yield of 5.5%, mature in five years.
For the government this represents
a midway solution. While on the one hand it is being forced to pay
back the money owed to Ukrainian leasing companies, on the other it
can spread this repayment over a five-year period.
In the words of Vladimir Kotenko,
head of Tax and Law at Ernst & Young Ukraine: “Instead of
making VAT refund in cash, the government will give to the private
companies these bonds. Effectively this is a deferral of the VAT
cash refund.
“By not refunding VAT to the
private companies in cash now, the government will be able to spend
the thus ‘saved’ money to finance other programmes requiring
funding from the budget.”
Leasing companies, meanwhile, have not only had to cope with
these government failures to pay back their VAT, they have also had
to deal with the fact that VAT is imposed on them at several stages
of a lease: when assets are returned at the end of leases, upon
payment of interest and commissions, and also when compensation is
paid in residential real estate transactions.
