1. law, govt and politics
2. government

HARMONISATION OF PUBLIC PROCUREMENT SYSTEM IN UKRAINE WITH
EU STANDARDS
www.eupublicprocurement.org.ua
STUDY ON
STATE SUPPORT TO UNDERTAKINGS IN UKRAINE
Authors:
Dr Heinrich Hölzler
Dr Ella Libanova
Dr Tetiana Iefymenko
Dr Yaroslav Kotlyarevsky
Svitlana Taran
Denys Chernikov
Valentin Dereviankin
Dr Eugene Stuart
March 2015
The contents of this document are the sole responsibility of the Crown Agents and its Consortium
partners and any opinions expressed here are not to be understood as in any way reflecting an
official opinion of EUROPEAID, the European Union or any of its constituent or connected
organisations.
2
ABOUT THE AUTHORS
Dr. Heinrich Hölzler (Germany) holds a PhD in economics and has more than 40 years professional
experience in competition and State aid law, public procurement and economics. He also has an
extensive experience since 1996 as a Team leader of multi-disciplinary advisory teams.
Dr. Hölzler is the author of a number of books and articles on international competition and State
aid policy and law. He has coordinated the contributions of experts to this Study.
Dr. Ella Libanova (Ukraine) is a Doctor of Economic Sciences, Director of the Ptoukha Institute for
Demography and Social Studies of the National Academy of Sciences of Ukraine, an Academician of
the National Academy of Sciences of Ukraine and a Member of the International Union for the
Scientific Study of Population.
Dr. Libanova has contributed the material on State support for regional development and the
shipbuilding and civil aviation sectors in the Study.
Dr. Tetiana Iefymenko (Ukraine) is a Doctor of Economic Sciences, a Member of the National
Academy of Sciences of Ukraine, a certified auditor and the author of the numerous publications on
tax policy and public finance. In addition, Dr.Iefimenko is the President of the Academy of Financial
Management of the Ministry of Finance of Ukraine.
Dr. Iefymenko contributed the sections of the Study concerning State support by means of tax
benefits and support to the energy and coal sectors.
Dr. Yaroslav Kotlyarevsky (Ukraine) holds a PhD in Economics and is the Head of Postgraduate
Studies Institute of the Academy of Financial Management of the Ministry of Finance of Ukraine.
Dr. Kotlyarevsky prepared the section of the Study regarding State support for the rescue and
restructuring of enterprises.
Svitlana Taran (Ukraine) is an economist and analyst at the Institute for Strategic Research “New
Ukraine”. She is also an advisor to a number of international technical assistance projects in
Ukraine and the author of numerous publications on free trade, EU economic policy and State aid
law and policy.
Ms. Taran prepared the material in the present Study on State support in the steel sector.
Denys Chernikov (Ukraine) is an economist with 13 years experience in public administration;
specialising in public policy, public finance and European integration issues. Mr. Chernikov has
published several articles on State aid policy and law.
Mr. Chernikov is the author of the material in the Study concerning State support to culture and
sports activities.
3
Valentin Dereviankin (Ukraine) is a lawyer with extensive professional experience in competition
law, corporate financing and public procurement. He is currently Deputy Team Leader of the EU
funded Project: “Harmonisation of Public Procurement System in Ukraine with EU Standards”.
Previously, he was Deputy Team Leader of the EU funded project: “Harmonisation of Competition
and Public Procurement Systems in Ukraine with EU Standards” (2009-2012) and, in that capacity,
he was a member of the working group drafting the law of Ukraine “On State aid to Undertakings”
which was subsequently adopted in July 2014.
Mr Dereviankin assisted the coordination of the Study and prepared the section dealing with the
legal framework for public support to undertakings together with additional materials on support
to regional development.
Dr. Eugene Stuart (Irish) is Team Leader of the EU funded Project: Harmonisation of Public
Procurement System in Ukraine with EU Standards. He holds PHD in International Law with a
speciality in State aid and Subsidy regulation. He was Head of the Irish State Aid Department of the
Ministry of Economy and since 1996, he has been working as an international legal & policy advisor
in various capacities in over 20 different countries. In the State aids field, he has contributed to the
development of State aid regulatory systems in Albania, Serbia, Montenegro, Bosnia and
Herzegovina, Hungary, Estonia, Slovakia, Slovenia, Lithuania, Croatia, Bulgaria, Ukraine, Kazakhstan,
Moldova and the Russian Federation. He has also been a Team Leader/ Deputy Team Leader in
many EU funded projects – including large horizontal projects with an EU law approximation and
policy dialogue focus in Lithuania, Moldova, Serbia (and Montenegro) and Kazakhstan – and later
served as EU High Level Policy Advisor on Public Procurement to the Moldovan Government in
2011.
Dr Stuart was primarily responsible for the design of the Study and provided additional guidance,
material and advice in its final stages of preparation.
4
ABBREVIATIONS
AA
Association Agreement between EU and Ukraine
AEA
Association of European Airlines
AMCU
Anti-Monopoly Committee of Ukraine
bn.
Billion
CAS
Common Air Space
CIB Programme
Comprehensive Institution Building Programme
CIT
Corporate Income Tax
CMU
Cabinet of Ministers of Ukraine
CEFTA
Central European Free Trade Agreement
CFCEL
Codes under Functional Classification of Expenditures and Lending
CHP
Heat Power Station
DCFTA
Deep and Comprehensive Free Trade Area
EC
European Commission
ECAC
European Civil Aviation Conference
ENPI
European Neighbourhood & Partnership Instrument
EU
European Union
EUR
Euro
EUROCONTROL
European Organisation for the Safety of Navigation
FAA
US Federal Aviation Administration
GATS
General Agreement on Trade in Services
GDP
Gross Domestic Product
GGMS
General Government Management Sector
HS code
Commodity Nomenclature of Foreign Trade in Ukraine
IATA
International Air Transport Association
ICAO
International Civil Aviation Organisation
IMF
International Monetary Fund
IT
Internet Technology
JSCB
Joint Stock Commercial Bank
kop./kWh
Kopeck per Kilowatt Hour
KVED
The Classifier of Economic Activities in Ukraine
MEDT
Ministry of Economic Development and Trade
MINFIN
Ministry of Finance
MJ
Ministry of Justice
MoU
Memoranda of Understandings
MME
Mining and Metal Enterprises
5
n. a.
Not available
NACE
Statistical Classification of Economic Activities in the European Community
NERC
National Energy and Utilities Regulatory Commission
NGO
Non-Governmental Organisation
NJSC
National Joint Stock Company
PDT
Priority Development Territories
PCA
Partnership and Cooperation Agreement
PLC
Public limited Company
PSP
Hydro Nuclear Power Station
PJSC
Public Joint Stock Company
R&D
Research and Development
SAA
Stabilisation and Association Agreement
SAL
Law of Ukraine “On State Aid to Undertakings”
SCMA
Subsidies and Countervailing Measures Agreement
SEZ
Special Economic Zone
SFI
State Finance Inspection
SMEs
Small and Medium Sized Enterprises
SRDF
State Regional Development Fund
STA
State Taxation Administration of Ukraine
TCU
Tax Code of Ukraine
TFEU
Treaty on Functioning of the European Union
TP
Technology Parks
TRIMS
Trade Related Investment Measures Agreement
UAH
Ukrainian Hryvnia
UIA
Ukrainian International Airlines
UZ
State-owned Railway Company Ukrzaliznytsia
VAT
Value Added Tax
WTO
World Trade Organisation
6
TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY
14
CHAPTER 1: INTRODUCTION
18
CHAPTER 2: DEVELOPMENT OF THE STATE AID SYSTEM IN UKRAINE
22
2.1. Legisaltive, Political and Economic Environment for monitoring and control of
State aid in Ukraine
22
2.1.1. International context
22
2.1.2. Legal Framework for the Public Support of Undertakings
24
CHAPTER 3: MAIN FORMS OF STATE SUPPORT TO UNDERTAKINGS IN UKRAINE
28
3.1. Subsidies
31
3.1.1. Compensation for Services of General Interest and Quasi-Fiscal Activities
35
3.2. Tax Benefits
38
3.2.1. Brief Overview of Tax System
38
3.2.2. Benefits related to Corporate Income Tax
41
3.2.3. Benefits related to Value Added Tax
47
3.2.4 Budgetary revenue foregone due to Tax Benefits
47
3.3 State Guarantees
50
3.4 Writing-off Debts and Penalties
53
CHAPTER 4: HORIZONTAL SUPPORT MEASURES
59
4.1. Regional Development
59
4.1.1. Legal framework for regional development
59
4.1.2. Support of investments
63
4.1.3. State Regional Development Fund
65
4.1.4. Special (Free) Economic Zones
67
4.1.5. Industrial Parks
69
4.1.6. Priority sectors for investment
70
4.2. Support to Rescue and Restructuring of Enterprises
71
4.3. Support to Small and Medium-Sized Enterprises (SMEs)
74
4.4. Support for Research and Development
76
4.4.1. Technoparks
76
7
4.5. Support to the Training of Employees
78
4.5.1. Legal Framework and Statistics
78
4.5.2. Employment of Young Persons
80
4.5.3. Employment of persons with disabilities
83
4.6. Support for Environmental Protection
85
CHAPTER 5: SECTORAL SUPPORT MEASURES
87
5.1. Support to the Energy Sector
87
5.1.1. Structure and Regulation of the Energy Sector
87
5.1.2. Support to the Coal industry
91
5.1.3. QFAs of "Naftogaz of Ukraine"
94
5.2. Support to the Steel Sector
98
5.2.1. Overview of the sector
98
5.2.2. Memoranda of Understandings (MoUs) between the Government and Industry
101
5.2.3. Tax benefits to domestic consumers of metal scrap
109
5.2.4. Direct budget support to the steel sector
110
5.3. State Support to Aircraft- and Ship-Building Enterprises
113
5.3.1. Overview of the legal basis for State support
113
5.3.2. State support policies for the ship and aircraft building industries
113
5.4. Support to Civil Aviation
119
5.4.1. Overview of the civil aviation sector
119
5.4.2. Legal framework and State Policy
120
5.5. Support to Culture and Sports Activities
127
5.5.1. Overview of Legal and Institutional Framework for Support of Cultural Activities
127
5.5.2. Support of cultural establishments and production of goods for cultural activities
131
5.5.3. Protection of cultural heritage
136
5.5.4. Support for film production
137
5.5.5. Support for audio-visual production, TV and radio broadcasting
139
5.5.6. Support for book publishing
140
5.5.7. Support for sports activities
143
5.6. State Support to the Financial Sector
144
CHAPTER 6: CONCLUSIONS
148
ANNEXES
151
Annex 1: Budget Revenues foregone based on tax measures
153
Table 1: Budget revenues foregone due to preferential taxation by types of taxes and duties
(mandatory payments) as of 1 January 2011, UAH thousands
153
8
Table 2: Budget revenue foregone due to preferential taxation by types of taxes and duties
(mandatory payments) as of 1 January 2012, UAH thousands
155
Table 3: Budget revenue foregone due to preferential taxation by types of taxes and duties
(mandatory payments) as of 1 January 2013, UAH thousands
157
Table 4: Budget revenue foregone due to preferential taxation by types of taxes and duties
(mandatory payments) as of 1 January 2014, UAH thousands
159
Table 5: Budget revenue foregone due to preferential taxation by types of taxes and duties
(mandatory payments) as of 1 July 2011, UAH thousands
161
Table 6: Budget revenue foregone from Tax Benefits for Employment of Disabled Persons
from 2008 to 2013, UAH million.
164
Annex 2: State Guarantees
174
Table 1: State Guarantees provided from 2011 to 2013
174
Annex 3: Support to the Coal sector
176
Table 1: Support to Coal Sector from the State Budget from 2002 to 2012, UAH million.
176
Annex 4: State Investment Projects
179
Table 1: State investment projects (programmes) involving loans from foreign
governments, foreign banks and international financial institutions in 2011
179
Table 2: State investment projects (programmes) involving loans from foreign
governments, foreign banks and international financial institutions in 2012
180
Table 3: State investment projects (programmes) involving loans from foreign
governments, foreign banks and international financial institutions in 2013
181
Annex 5: Tax benefits in the energy sector
182
Table 1: Number of industrial enterprises involved in economic activities classified as
energy, coal mining, oil and oil processing, numner of employees at these enteprises.
Table 2. Indicators of consolidated budget revenue foregone due to tax benefits for energy
sector from 2010 to 2013, UAH million.
Table 3: Budget Support for Coal Industry from 2007 to 2014 according to purposes, UAH
million.
Annex 6: Legal bases for support to aircraft construction and shipbuilding
182
Table 1: Legislation providing public support to the aircraft construction sector
187
Table 2: Legislation providing public support to the shipbuilding sector
190
Annex 7: Legal bases for support to the civil aviation sector
192
Legal framework for support of the civil aviation sector (air transportation services and
airports)
192
Annex 8: State support to Culture and Sports
195
Table 1: Consolidated budget support (including State and local budgets) for Sports, Culture
and Mass Media from 2008 to2009, UAH million.
195
Table 2: Consolidated budget support (State and local budgets) for Sports, Culture and
Mass Media from 2010 to 2011, UAH million.
196
Table 3: Consolidated budget support (State and local budgets) for Sports, Culture and
Mass Media from 2012 to 2013, UAH million.
197
9
184
186
187
LIST OF TABLES
Tables
Table 1: Provisions of EU-Ukraine Association Agreement concerning State aid
Table 2: Structure of budget support to economic activities in Ukraine , 2011-2013.
Table 3: Consolidated budget expenditures on economic activities
Table 4: Subsidies and money transfers to enterprises (institutions, organisations) in Ukraine in 2007-2013
Table 5. Structure of State subsidies by economic sectors in 2011-2013
Table 6: Taxes and duties before and after adoption of the Tax Code of Ukraine in 2010
Table 7: Budgetary revenue foregone due to preferential rates of corporate income tax (CIT)
Table 8: State budget revenue foregone due to tax benefits)
Table 9: State Budget revenue foregone due to tax benefits by economic activities in 2007-2012n
Table 10: State guarantees provided to undertakings in 2010 - 2013
Table 11: Resolutions by the Cabinet of Ministers on writing-off debts and provision of State guarantees in
2011-2013
Table 12: Support to Special Economic Zones, 2000 - 2009
Table 13: Support to enterprise restructuring and liquidation
Table 14: Local budget support to SMEs in the period 2008 to 2012
Table 15: Employment of disadvantaged persons and new jobs created in priority sectors (2013)
Table 16: Employment of persons entitled to additional guarantees (2013)
Table 17: Unemployed entitled to compensations for starting up a new business (January 2013 to
September 2014)
Table 18: New jobs created during the period from January to September 2014 by employers compensated
in the amount of the consolidated social security tax
Table 19: Consolidated indicators of budget revenue foregone due to tax benefits (CIT) in the coal sector
during 2010–2013
Table 20: QFAs and their results in the case of “Naftogaz of Ukraine” in 2011 - 2013
Table 21: Price of Domestically Produced Natural Gas for "Naftogaz of Ukraine"
Table 22: Top 15 commodities of Ukraine’s metallurgical exports in 2013
Table 23: Overview of regulated retail tariff for supply of electricity to enterprises in mining, metal, coking
and chemical sectors compared to other industrial consumers (period from November 2008 to June 2010)
Table 24. Compensation of losses from supplying electricity to mining and metal and chemical enterprises
at a preferential regulated tariff
Table 25: Import - export of metal scrap by Ukraine in 2013 (HS code 7204)
Table 26: Budget support within the State programme for development and reform of the ore mining and
metallurgical sectors until 2011 (planned and actual)
Table 27: Budget spending on the programmes for restructuring of industrial enterprises including steel
10
and mining enterprises
Тable 28: Amounts of budget revenue foregone due to tax benefits provided for aircraft and shipbuilding
industries 2010 to 2013
Table 29: Ratio of tax benefits for aircraft and shipbuilding industries presented as the budget revenues
foregone and the total amount of budget losses during 2010 – 2013
Table 30: Exemption from Import duty, UAH million for the Aircraft Industry 2010 to 2013
Table 31: Compensations from the State budget to the local budgets
Тable 32: Economic indicators for aircraft and shipbuilding industries 2012 – 2013
Table 33. Budget financing of the State Aviation Service of Ukraine in 2011-2013
Table 34. Key Indicators for passenger air transportation in Ukraine 2010 to 2013
Table 35: Financial performance of the passenger air transport sector 2010 to 2013
Table 36: Capital Investment in Passenger Air Transport Sector
Table 37: Forecast of financing needs for the design, construction, reconstruction and repair works at
Ukrainian airports
Table 38: Consolidated indicators on tax benefits ("Zero" VAT rate) provided for civil aviation in 2011 to
2013
Table 39: Overview of legal provision on State support for culture and sports
Table 40: Selected Budget Programmes in the Spheres of Culture and Sports
Table 41: CIT Tax benefits to film production, 2011 to 2013
Table 42: VAT Tax benefits to film production, 2011 to 2013
Table 43: Land Tax benefits to film production, 2011 to 2013
Table 44: Film undertakings exempted from Land tax until 2016
Table 45: CIT Tax benefits to book publishing, 2011 to 2013
Table 46: VAT Tax benefits to book publishing, 2011 to 2013 (Tax Code Title XX, Chapter 2, Article 5)
Table 47: VAT Tax benefits to book publishing, 2011 to 2013 (Tax Code Title XX, Chapter 2, Article 5)
Table 48: Anti-crisis measures in the financial sector
Table 49: Key financial indicators of banks recapitalised by the State (as of the 3d quarter of 2014)
11
PREFACE
The Law of Ukraine on State Aid to Undertakings of July 2014 provides the foundation for a
new system of regulatory control on State support measures to business undertakings that
give specific benefits to some firms and may, therefore, have an undue impact on
competition.
Various additional regulatory steps, institutional preparedness and certain policy reviews
will be needed by 2017/2018 to ensure that this system works smoothly when it comes
into full operation and that continuing State support measures to business undertakings
can comfortably comply with the Law.
When the State Aid System is fully in force, it has the potential to deliver important
benefits to Ukraine. These include:
1) The promotion of higher standards in public finance management, including the
avoidance of duplicating or wasteful public expenditure.
2) A contribution to the anti-corruption efforts of Ukraine by ending secret subsidies
or subsidies to specific firms that have no justification.
3) Increasing the level of competition in the economy by removing any cases where an
artificial competitive advantage is unnecessarily given to some firms.
4) Ensuring that support measures to the business sector (in whatever form) are well
justified and likely to succeed in achieving tangible economic results.
5) Contributing to the functioning market economy in Ukraine by rationalising future
industrial modernisation, foreign direct investment
and other economic
development policies in line with best international practice.
6) Meeting the international commitments undertaken by Ukraine in regard to State
support to business and industrial sectors (specifically under the EU-Ukraine
Association Agreement, several WTO agreements and the Energy Community
Treaty).
Similar systems were established since the 1990s in all Candidate countries for EU
membership and are to be found in many non-EU countries which are currently forging
closer economic and trade relations with the EU. In all such cases, one of the important
initial challenges was to identify the range of active (or potentially active) State support
measures that could be regarded as possible State aids in order to establish the national
State Aid Inventory - which is a core element of State Aid regulatory systems.
As Ukraine works through the transitional period set out in the Law on State Aid to
Undertakings there needs to be a growing consciousness of which State support measures
12
might constitute “State aid” on the part of all relevant public authorities. Accordingly, the
EU funded Project is pleased to present an initial outline in this Study of at least some of
the types of measures which will need to be examined in more detail, included in the
Ukrainian Inventory (if they do amount to “State aids”) and reviewed further as regards
their continuing usefulness and compliance with EU and international standards.
Finally, our thanks to the expert team which developed the Study. Theirs was a unique
endeavour as so little was known or consolidated regarding State supports to business
undertakings in Ukraine. The Study will undoubtedly prove very helpful in raising the
necessary awareness of what needs to be considered in the coming years.
Dr Eugene Stuart
PROJECT TEAM LEADER
March 2015
13
EXECUTIVE SUMMARY
The EU funded Project “Harmonisation of Public Procurement System in Ukraine with EU standards”
commenced work in Kiev on 11 November 2013. The general objective of the Project is “to
contribute to the development of a solid and consistent public finance management through the
establishment of a comprehensive and transparent regulatory framework for public procurement,
an efficient public procurement institutional infrastructure, the accountability and integrity of
public authorities in regard to public procurement and the development of the Ukrainian State aid
system”.
In the context of the Project’s work supporting the development of the Ukrainian State aid system,
this Study was prepared in order to provide the Government of Ukraine, interested public
institutions and non-governmental organisations with a general overview of the legal framework,
the scope and forms of State support to undertakings in Ukraine. It is a based on publicly available
data on State budget expenditures, budgetary revenue foregone and public liabilities registered
during a period of three to five years that can be categorised as support to economic activities in
Ukraine.
While public funds are normally spent in accordance with particular political and economic
priorities, defined by the State and are used, in various ways, to subsidise a wide range of economic
activities and sectors, there is no scrutiny in Ukraine as regards the consequences of such support
measures for competition, trade, or value for public money. Equally, there is little, if any, oversight
as regards the public needs, rationality, general public interest and proportionality of State support,
in any form, direct or indirect, to business in Ukraine. This represents an important information gap
in the context of the development of the Ukrainian State aid system. Accordingly, the overall
purpose of this Study is to improve the availability of information on State support measures in
Ukraine and the main objective of the Study is:
to provide the central Government, involved public authorities and institutions, as well as
the public at large with an initial insight regarding the objectives, scope, key beneficiaries
and generally estimated amounts of State support to undertakings in Ukraine in recent
years.
The Study concentrates on the notion of State support rather than State aid, as it is defined in the
Law of Ukraine “On State aid to Undertakings”. State support is a more general term, covering any
type of public assistance to undertakings, whereas the notion of State aid is a specific sub-set of the
overall concept of State support that can be identified as such only after a proper assessment
according to the Law and formal decisions by the AMCU. With this important distinction, the Study
does not seek to prejudge any eventual position of the AMCU as to whether specific measures are
or are not technically qualified as State aid. At the same time, the Study provides a compendium of
available legal, economic, statistical and policy data concerning certain support measures that
might, in principle, be characterised as State aid.
The Study begins with an overview of the fundamental rules for public support of economic
activities in Ukraine in national legislation; focussed on Constitutional provisions, the Ukrainian
Commercial Code, competition legislation and the recently adopted Law on State Aid to
Undertakings. It also addresses the political and economic environment related to development of
a national State aid system and explains the international context (Association Agreement, Energy
14
Community Treaty and WTO requirements) necessitating the aproximation of the Ukrainian system
with the relevant EU State aid legislation and international subsidy regulations.
In Chapter 2, the Study sets out information on the main forms and general structure of public
support to undertakings in Ukraine based on the overall findings of this research and some official
statistics on subsidies and other forms of public support currently available to undertakings in
Ukraine.
The Study reveals that all Ukrainian Governments have provided undertakings with public support
in various forms – direct budget subsidies and loans, tax exemptions and deferrals, writing off debts
and penalties in regard to the social insurance system, compensating interest rates for commercial
borrowings, issuing State guarantees to secure financial liabilities of State owned enterprises,
compensating the cost of services provided to the population below their actual costs and
providing additional funds to State owned companies through increased shareholdings.
In general, State support to undertakings in Ukraine has been predominantly sectoral in character;
during the latest 3 years the largest share of support measures (mainly through direct budget
financing, State guarantees and tax benefits) has been granted to agricultural producers, although
comparable amounts have been also directed to support coal mining and energy enterprises.
According to the estimations here, sectoral measures, for example in 2012, accounted for
approximately 43.6% (or 46.1 billion UAH) of the total financial resources dedicated to public
support for economic activities in Ukraine.
While the Study analyses horizontal and sectoral support measures in a few selected industrial
sectors, it does not deal with supports to agricultural producers as that sector requires special
policies for development and support and will not be covered by the Ukrainian State aid regulatory
system. At the same time, it is to be noted that Ukrainian agricultural producers received about one
third of all fiscal benefits, about 11-12% of government subsidies and about 32% of State
guarantees in 2012.
Chapter 3 of the Study provides an analysis of the most common forms of “horizontal” support
measures; in particular tax benefits, the preferential regulatory regime for special priority zones
and technological parks, existing public support measures within regional development
programmes and support to rescue and restructure State-owned enterprises facing financial
difficulties. Inturn, Chapter 4 examines State support measures in several selected sectors - energy
and coal, steel, shipbuilding, civil aviation, culture and sports.
The Government of Ukraine has been supporting economic activities in order to maintain the
viability and competitiveness of domestic producers, especially those working in “strategic” sectors
of the national economy. A particular objective of this Study was to analyse policies and
instruments used by the Ukrainian governments to support industries that typically confront
growing inefficiencies, low productivity, environmental and overcapacity problems, mass
redundancies and decreasing competitiveness in international markets. These are often referred to
internationally as “sensitive sectors” and there is an increasing presumption that State supports in
such sectors are inefficient as free trade, competition and globalisation have become increasingly
prevalent in these sectors. In this regard, the Study focuses primarily on the energy, coal, steel,
aircraft construction and shipbuilding, civil aviation sectors in Ukraine. Certain attention is also
given to film production, book publishing, music, theatres and sports, which have been traditionally
considered in Ukraine, as in other post-Soviet countries, to be public sector activities. Today
relevant institutions and organisations in these sectors are gradually adjusting to normal market
conditions but they still require substantial budget support.
15
Public financial support to economic activities in Ukraine has been largely motivated by the
necessity for the Government to address growing social problems that could have emerged as a
result of immediate bankruptcies of large State-owned enterprises that continued to lose markets
under unfavourable economic conditions and growing competition in international markets. The
governments of Ukraine took steps to prevent redundancies and maintain the profitability of
industrial enterprises; especially those located in coal mining, depressed and densely populated
areas. At the same time, the scope of horizontal measures that could have encouraged
investments, SMEs development, research and innovation, new jobs, energy saving, environmental
protection and regional cohesion, has been rather limited. In particular, the Regional Development
Fund, established in 2012 as the main instrument for financing regional and local programmes, has
been chronically under-financed by 70-80% due to lingering budgetary deficits.
In recent years, the Ukrainian governments have adopted a number of legislative acts and
strategies promoting better a fiscal and regulatory environment for investment: these primarily
focussed on VAT and corporate income tax exemptions for certain priority industries and territories
with a special legal regime and for economic operators participating in industrial and techno-parks.
Nonetheless, these measures have not produced any significant effect on the macro-economic
indicators of Ukraine.
The largest share of public support (including subsidies, tax benefits, write offs, State guarantees
and compensations) has been granted to State owned enterprises in the energy sector (including
coal), and to shipbuilding, aircraft building, steel production and IT development. These supports
were generally directed towards supporting the profitability and operational needs of large Stateowned enterprises, large exporters and producers of energy from renewable resources. Exceptional
measures were also applied to support business operations related to one national investment
project – the organisation of the Euro-2012 football finals in 2012 (where State guarantees issued
to secure commitments of such undertakings alone amounted to some 650 million UAH).
The Government has also directed budget resources to compensate losses of undertakings selling
essential services and products at regulated prices or below their actual cost. In that regard, the
Study examines quasi-fiscal operations and subsidies directed to the National Joint Stock Company
”Naftogaz of Ukraine”, the largest operator in the Ukrainian energy sector.
The energy sector (including coal, oil and gas, electricity) received on the average some 30% of the
total amount of budget support for undertakings in Ukraine from 2011 to 2013. Energy enterprises,
including the coal and peat mining segment, were the main beneficiaries of tax benefits. Thus, total
budget revenue foregone from tax benefits to undertakings accounted for approximately 3.5% of
GDP annually (between 32 billion and 46 billion UAH). Within that category of State support, VAT
exemptions represented the main share of budget revenue foregone: on average 32.68 billion UAH
per year.
Another widely used form of State support in Ukraine is State guarantees granted by the
Government to State owned enterprises, mainly in the energy sector, which increased public
liabilities by approximately 40 billion UAH in the period 2011 to 2013. 90% of these State
guarantees were granted to energy sector enterprises and primarily secured the financial position
of only one company - NJSC “Naftogaz of Ukraine”. The coal mining industry also received on
average 20% of all direct subsidies and compensations supporting economic activities in Ukraine.
The Study also demonstrates that a large share of State support has been provided through direct
subsidies to State-owned enterprises and institutions involved in the provision of certain public
16
functions (such as hospitals, cultural establishments, research institutions, educational institutions
and sports organisations) which partially participating in economic activities, including the provision
of services of general economic interest. In the period 2011 to 2013, direct budget subsidies to
undertakings amounted on the average to 30 billion UAH annually.
At the same time budget financing for cultural activities, such as film making and distribution, book
publishing, theatres, music and arts production and performances and sports, amounted to a
modest 11 -13 billion UAH per year (three times less than the single amount of State support to the
“Euro-2012” football project in 2012).
While the nature and use of State supports in Ukraine has been largely similar to schemes of
support to be found in other countries, many of the amounts are quite small in overall terms with
the exception of highly targeted supports to certain industries and generally expensive VAT
exemptions. Nonetheless, the Study points to several significant policy and operational issues
concerning State support to undertakings in Ukraine, including:

A lack of strategic approach, transparency and predictability of the decision-making process
for State support measures;

A lack of eligibility criteria for the scope, categories of recipients of State support and
accountability, both on behalf of the public grantors and beneficiaries of public resources,
for the effective use of available public resources;

A lack of information concerning existing State support measures, actual amounts in all
forms being provided for particular enterprises and business activities;

The absence of a streamlined institutional infrastructure for the assessment, approval and
monitoring of State support measures in all sectors and regions of Ukraine.
Accordingly, the Study provides a starting point for policy reflection on State support measures in
Ukraine under various national policy headings. It also provides a starting point for the compilation
of a comprehensive State aid inventory required under the Law on State Aid to Undertakings of 1
July 2014 and which is also necessary to fulfil Ukraine’s commitments under the EU-Ukraine
Association Agreement (Section 2 of Chapter 10) that require the establishment of a fully
functioning State aid system in Ukraine in the coming years.
17
CHAPTER 1: INTRODUCTION
The Project
The EU funded Project “Harmonisation of Public Procurement System in Ukraine with EU
Standards” implemented by a consortium led by CROWN AGENTS Ltd commenced work in Kiev on
11 November 2013 and will operate until November 2016. The general objective of the Project is
“to contribute to the development of a solid and consistent public finance management through the
establishment of a comprehensive and transparent regulatory framework for public procurement,
an efficient public procurement institutional infrastructure, the accountability and integrity of public
authorities in regard to public procurement and the development of the Ukrainian State aid
system”.
The Project is working to contribute to the development of a consistent public finance management
system through the development of a comprehensive and transparent legal framework, an efficient
institutional infrastructure for public procurement, the accountability and integrity of public
authorities in this sector, as well as through the development of the national State aid system in
Ukraine.
The main beneficiaries of the Project are the Ministry of Economic Development and Trade (MEDT)
and the Anti-Monopoly Committee of Ukraine (AMCU). At the same time, the Project is also
working with a wider range of stakeholders, including the Cabinet of Ministers, the Parliament
(Verkhovna Rada), the Ministry of Finance, the Ministry of Justice, the Accounting Chamber, the
State Financial Inspection of Ukraine and other public organisations with an interest in the reform
of the public procurement system and the development of the State aid system.
The Project is currently providing priority assistance in regard to State aid legislation in Ukraine,
preparations for the entry into force of the Law on State Aid to Undertakings of July 2014, the
strengthening of the AMCU as the main institution responsible in the State aid system of Ukraine
and training and awareness-raising across the government system.
State Aid and and the development of the Ukrainian State Aid System
“State aid” is essentially about the impact on competition and trade of subsidies, tax breaks and
other forms of government concessions, which benefit some firms and, therefore, can impact
negatively on other firms. In the modern era of free trade, these types of State economic
intervention are now regarded as problematic when they have a significant impact on trade and
competition. With the opening up of trade and the international position of a country (including EU
integration, WTO and Energy Community Treaty membership) a key consequence is that
international rules concerning State support to economic activity (and the interests of new trading
partners in the impact of State aids and subsidies on trade and competition) need to be taken fully
into account.
The legal necessity to control State aid in Ukraine arises from a number of Ukraine’s international
obligations, in particular, from the EU-Ukraine Association Agreement, which require Ukraine,
within a specified transitional period, to accomplish a range of important steps towards the full
operation of a State aid control system which would be fully compatible with EU standards.
The present Study has been prepared by the Project in the context of advisory support to the
Ukrainian Government regarding the development of the State aid system and the implementation
18
of Chapter 10 of the EU-Ukraine Association Agreement. The Study examines statistics on State
support granted to undertakings in Ukraine over the last 5 to 10 years and provides an initial
overview of measures that might be assessed as State aid in terms of relevant EU legislation.
Objectives and approach of the Study
The fragmented information about State support measures in Ukraine creates a certain constraint
for the establishment of a functioning State aid monitoring and control system at the national level.
The AMCU has been authorised under the new Law of Ukraine “On State aid to Undertakings”
adopted on 1 July 2014 to monitor and control State aid measures in Ukraine. Starting from 2017, it
will have to assess notified support measures to identify incompatible State aid measures and to
enforce the alignment of existing State aid measures with the new Law. In a wider sense, the AMCU
will have to ensure the alignment of the national system of State aid control with EU State aid rules
within a certain set period.
For that purpose, as a primary step, a State aid inventory needs to be established and maintained
and annual reports on State aid measures and trends must be prepared. The Law of Ukraine “On
State aid to Undertakings” provides that all existing State aid measures are to be notified to the
AMCU within one year of the entry into force of the Law (i.e. by August 2018). However, the
present availability of data makes it rather difficult for the AMCU to anticipate the range, number
and importance of such measures within the economy. Moreover, there is a risk that State aid
providers (in effect a wide range of public institutions) will not be in a position to properly identify
public interventions in the market for which they are responsible.
In the absence of a functioning system of State aid monitoring and control in Ukraine, it can be
assumed that public funds are used, in various ways, to subsidise a wide range of economic
activities and sectors. While public funds are normally spent in accordance with particular political
and economic priorities, defined by the State, there is no scrutiny in Ukraine as regards the
consequences of such support measures for competition, trade, or value for public money. Equally,
there is little, if any, oversight as regards the public needs, rationality, general public interest and
proportionality of State support, in any form, direct or indirect, to business in Ukraine.
Therefore, the main objective of this Study is to provide the central Government, involved public
authorities and institutions, as well as the public at large with an initial insight regarding the
objectives, scope, key beneficiaries and generally estimated amounts of State support to
undertakings in Ukraine in recent years. It appears that there have been no previous similar studies
carried out in Ukraine. Accordingly, the overall purpose of this Study is to improve the availability
of information on State support measures in Ukraine.
The Study concentrates on the notion of State support rather than State aid, as it is defined in the
Law of Ukraine “On State aid to Undertakings”. State support is a more general term, covering any
type of public assistance to undertakings, whereas the notion of State aid is a specific sub-set of the
overall concept of State support that can be identified as such only after a proper assessment
according to the Law and formal decisions by the AMCU. The distinction between State support and
State aid, therefore, is important and does not seek to prejudge any eventual position of the AMCU
as to whether specific measures are or are not technically qualified as State aid. The Study provides
a compendium of available legal, economic, statistical and policy data concerning certain support
measures that might, in principle, be characterised as State aid.
“State aid” specifically refers to the impact of subsidies, tax benefits and other forms of
government advantages granted to undertakings on competition and trade, which, therefore, can
impact negatively other firms, that do not receive similar benefits. Economic interventions by the
19
Government must be regarded as problematic when they have a significant impact on trade and
competition.
With opening up of the country’s position in international trade within the context of EU
integration, the WTO and the Energy Community Treaty membership, international standards for
ensuring the interests of the trading partners must also be applied in Ukraine and interventions by
the Government affecting trade and competition need, therefore, to be fully taken into account.
The Law of Ukraine “On State Aid to Undertakings” defines the notion of State aid as follows:1
“State aid to undertakings (hereinafter “State aid”) means any form of support to undertakings
through State resources or local resources which distorts or threatens to distort economic
competition by creating advantages for the production of certain kinds of goods or for carrying
out certain types of economic activities;”
State support measures pursuing objectives of the general economic development and sustainable
growth (such as regional development programmes, environmental protection measures, job
creation, professional training, R&D activities, etc.) are referred to as “horizontal” measures. State
support promoting the development of certain priority sectors or certain economic activities,
including measures aimed at the conservation and promotion of the national heritage, culture and
sports, are referred to as “sectoral”. However, the distinction between horizontal and sectoral
measures is not always absolute because there may be certain overlaps. For example,
environmental measures can be viewed as horizontal, while the Government might specifically
encourage such measures only in one or two sectors of the economy, or even only in certain
individual enterprises. Rescue and restructuring measures typically favour certain individual
strategic enterprises but they can be also viewed as horizontal policies.
This Study presents statistical data and other information on State support measures within the
following categories:

Horizontal support measures, i.e. support to undertakings through the establishment of special taxation
regimes, the implementation of regional and industrial development programmes, the rescue and
restructuring of enterprises, social development programmes, etc.;

Sectoral support measures, i.e. examples of support to undertakings in the sectors of energy and coal,
steel, ship and aircraft building, civil aviation, cultural development and financial markets;

Objectives, instruments and forms of State support to undertakings in Ukraine, based on the outcome
of interviews and meetings with representatives of public authorities, as well as representatives of
undertakings in the selected sectors.
The sectors selected for this Study have been identified as the most likely to become of importance
for monitoring in the future implementation of the national State Aid System in Ukraine.
The latest publically available statistical information refers to 2012-2013. At the same time, the
political, economic and social environment in Ukraine has dramatically changed in 2014.
Accordingly, the relevance of the data presented here may be questioned in the light of the new,
different and changing political, economic and financial situation in Ukraine. To address such
concerns, the following considerations are relevant and justify the approach taken in this Study:
1. In order to analyse the scope and adequacy of public support to undertakings in different
economic sectors and to better understand relevance and effect of such measures for the
economy, it is necessary to have historic data on State interventions in order to make
comparisons possible. In each sector there is a certain tradition and methodology of State
intervention and support, based on changing political priorities or actual needs for the
sector’s development.
1
Law of Ukraine “On State Aid to Undertakings”, No. 1555-VII of 1 July 2014, Article 1(1).
20
2. The amount of public support to undertakings decreases the potential revenues of public
budgets at the national and/or local level and, consequently, it constrains the financing of
other essential public needs and functions. Thus, a comparison over time can help to
better understand the extent to which State support measures have been actually
justified in terms of the efficient performance of the national economy.
3. State support to undertakings should always be justified by a real necessity to address
certain general interests of the country, regardless of other interests and effects that a
support measure may also produce. The maintenance and development of effective
competition as a core principle of the market economy is also an important public
interest. Therefore, there is an inherent conflict between the purpose of a particular
public support measure and the wider goal of promoting free and fair competition as a
general economic interest. However, the effect of State support on competition becomes
visible only over time through certain changes in market structures or economic
efficiencies. Historic data provide the possibility to compare the effects of State
interventions on competition over several years.
4. The comparison of historic data on horizontal and sectoral support measures provides a
basis for future government decisions concerning budgetary and industrial policies and
the approval of economic development programmes. It is important to maintain State
support to business activities where it is necessary for economic and social development;
but such measures need to be transparent, well targeted and should have the least
possible effects on existing and potential competition.
Structure of the Report on the Study
This Report is structured as follows:
Chapter 1
Provides an overview of the fundamental rules for public support of economic
activities in Ukraine in national legislation and of the political environment for the
functioning of a national State aid system and the international context requiring
gradual approximation of the Ukrainian system with the relevant EU State aid
legislation;
Chapter 2
Provides information on the main forms and general structure of public support
to undertakings in Ukraine based on the overall findings this research and some
official statistics on subsidies and other forms of public support currently available
to undertakings in Ukraine.
Chapter 3
Provides an analysis of the most common forms of “horizontal” support
measures; in particular tax benefits, the preferential regulatory regime for special
priority zones and techno-parks, existing public support measures within regional
development programmes and support to rescue and restructure State-owned
enterprises facing financial difficulties.
Chapter 4
Examines State support measures in several selected sectors - energy and coal,
steel, shipbuilding, civil aviation, culture and sports.
Chapter 5
Presents the conclusions of the Study.
21
CHAPTER 2: DEVELOPMENT OF THE STATE AID SYSTEM IN UKRAINE
2.1. Legislative, political and economic environment in Ukraine
In 2013 Ukraine had a population of almost 46 million people and a nominal GDP of 177,431 billion
USD (in December 2013 this amounted to € 130 billion). Ukraine ranks 53rd in the world for
merchandise exports and 40th in the world for merchandise imports. In regard to commercial
services, Ukraine ranks 42nd for exports and 27th for imports2. The Ukrainian economy traditionally
has a strong agribusiness base, comparatively well-developed industrial sectors (food, steel, coal,
engineering and shipbuilding) and a fast growing services sector. 2013 data indicate that there were
1.7 million business entities in Ukraine. Most of these were sole entrepreneurs, but nearly 400,000
were firms/legal entities (i.e. SMEs and larger enterprises).
The 2014 IMF Country Report on Ukraine3 highlights various economic and financial objectives that
Ukraine needs to achieve in order to overcome economic development difficulties and financial
risks. In 2014 the IMF downgraded Ukraine’s GDP growth to 6.5 per cent4 and the current account
deficit for 2014 was projected at the level of 2.5 per cent of GDP5.
Ukraine has inherited from the Soviet Union an economy heavily dependent on public funds and
the political decisions of the central Government. In the course of the history of Ukrainian political
and economic reforms, industrial and regional policy objectives may have varied significantly but all
Ukrainian Governments have continuously supported State-owned enterprises and producers in
certain “priority sectors” (e.g. coal mining, steel, chemicals, aircraft manufacture, ship-building and
book publishing) in order to ensure their survival and viability in conditions of economic instability
and growing international competition.
2.1.1 International context for development of State aid system in Ukraine
The initial legal framework for monitoring and control of State aid in Ukraine was established in the
context of the Partnership and Cooperation Agreement (PCA), effective since 19986. In February
2005, the EU and Ukraine agreed on an Action Plan to facilitate the implementation of PCA and
transfer towards deeper economic integration and political association between Ukraine and the
EU7.
2
Data are taken from the official Ukraine Report to the WTO of September 2014, WTO News/Trade
Topics/Resources/Documents/English.
3
International Monetary Fund: Country Report on Ukraine, No. 14/263 of September 2014.
4
IMF Report, ibid, page 7.
5
ibid. page 8.
6
Ukraine was the first country of the former Soviet Union to conclude a PCA with the European Union in June
1994. After ratification by Ukraine, the EU and its Member States, the PCA came into force in March 1998.
7
In the specific context of competition policy, the Action Plan set several important priorities. In regard to the
overall functioning of the market economy in Ukraine, the priority is defined in terms of continuing progress
in the establishment of a fully functioning market economy, including price-formation, control of State aid,
and a legal environment that ensures fair competition between economic operators. As regards competition
policy, particular importance is given to prioritising the development of a functioning State aid system in
22
In March 2007, negotiations on an EU - Ukraine Association Agreement, including provisions on a
Deep and Comprehensive Free Trade Area (DCFTA), were launched. The DCFTA provisions
envisaged that, among a wide scope of comprehensive regulatory and institutional reforms,
Ukraine would introduce a national State aid regime compatible with EU State aid rules. The EU, for
its part, would provide Ukraine with necessary technical assistance and budget support to prepare
and implement the DCFTA provisions and ensure the functioning of the national State aid system.
Following the deep political crisis in Ukraine from November 2013 to March 2014, the political
provisions of the EU-Ukraine Association Agreement were signed on 21 March 2014 and the
remaining trade provisions, including Articles 262-267 setting out detailed commitments for the
establishment of a State aid system, were signed on 27 June 2014.
In September 2014, due to political complications and growing military conflict affecting Ukraine, it
was decided to delay the enactment of the trade and economic chapters of Association Agreement
until 1 January 2016 (while the remaining parts of the Agreement entered into force on 1
November 2014). The relevant Association Agreement requirements are summarised in Table 1
below.
Table 1: Provisions of the EU-Ukraine Association Agreement concerning State aid.
Generally
Specifically
State aid regulation is addressed in Articles 262 to 267 of the Association Agreement. The
intention is to further elaborate, prioritise and timetable the steps to be taken to achieve a
functioning State aid system in Ukraine fully compatible with EU standards.
Element
Source
Timetable
Entry into force of Trade provisions (including
State aid Articles)
Title IV
31 December
2015
First Annual Report on State aid in Ukraine
Article 263 (1) and (5)
31 December
2020
a. Transparency of financial relations between
public authorities and public undertakings
Article 263 (3), (4)
and (5)
31 December
2020
Adoption of the national State aid legislation and
establishment of an operationally independent
authority to apply the State aid rules
Article 267(1)
31 December
2020
Full consistency of new State aid with EU General
Principles
Article 267(1)
31 December
2021
Establishment of a comprehensive inventory of
“existing” State aid schemes
Article 267(2)
31 December
2020
Alignment of “existing” State aid schemes with
the State aid rules
Article 267(2)
31 December
2022
Use of maximum State aid limits under the
category of regional State aid
Article 267(3)(a)
(at least until) 31
December 2020
Completion of a “State aid mapping” exercise
Article 267(3)(b)
31 December
b. Organisational and financial structure of
undertakings enjoying special or exclusive rights
(or entrusted with the provision of services of
general economic interest) that receive public
compensation, produce separate accounts
Ukraine in line with PCA commitments, including the development of legislation compatible with EU rules and
the establishment of monitoring and transparency mechanisms.
23
with the European Commission
2019
It is also important to note that since 1 February 2011, Ukraine has been a Contracting Party to the
Energy Community Treaty. In contrast to the provisions of Chapter 10 of the Association
Agreement, which establishes general requirements for the development of a State aid system and
allows Ukraine a 7 year transitional period for the legislative and institutional adjustment before
full implementation of the State aid control in compliance with EU standards, Articles 18 and 19 of
the Energy Community Treaty require its signatories to ensure State aid control in the energy
sector8 and apply some EU energy sector regulations without any transitional periods.
In addition, as a WTO member since 16 May 2008, Ukraine must implement the Subsidies and
Countervailing Measures Agreement (SCMA), the Trade Related Investment Measures Agreement
(TRIMS) and the General Agreement on Trade in Services (GATS) – each of which regulate certain
aspects of subsidies to business operators. As a WTO Member, Ukraine has notified its subsidies
according to the relevant international standard. For instance, the SCMA notification submitted on
2 July 2013 to the WTO covered the following aspects:
Ukraine WTO Subsidies under the SCMA
(period 2011 and 2012)9
HORIZONTAL PROGRAMMES
 Special Economic Zones and Priority Territories

Technology Parks
SECTORAL PROGRAMMES
 Shipbuilding

Aircraft construction

Machinery for agriculture

Space industry

Coal Mining

Book-Publishing
2.1.2. Legal Framework for State Support of Undertakings
The right to conduct entrepreneurial activities and the Governmental guarantees to protect
competition in Ukraine are provided by Article 42 of the Constitution of Ukraine10. In addition,
Article 92 of the Constitution provides that the fundamental rules for ownership (part 1, Para.7),
entrepreneurial activities, competition rules and anti-monopoly regulation (part 1, Para.8), the
functioning of the budgetary system, the principles for the establishment and functioning of the
financial, monetary, credit and investment markets, the taxation system, taxes and duties (part 2,
8
It can be noted here that the energy sector as covered by the Energy Community Treaty does not include
the coal industry.
9
WTO Committee on Subsidies and Countervailing Measures, New and Full Notification pursuant to Article
XVI:1 of the GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures,
G/SCM/N/253/UKR, 11 July 2013.
10
Law of Ukraine No. 254к/96-ВР of 28 June 1996.
24
Para. 1), the rules on free trade and the establishment of special economic zones (part 2, Para. 8)
shall be regulated exclusively by the laws of Ukraine.
The Commercial Code of Ukraine11 provides for a number of justifications allowing the State to
support undertakings. In particular, Article 16(1) of the Commercial Code provides that the State
may subsidise undertakings to achieve the following purposes:




to support the production of essential foods, medicines and means for the rehabilitation of the
disabled;
to ensure the procurement of certain imported goods and socially important transportation
services;
to finance undertakings in critical social, economic, or environmental situations in order to
ensure the necessary level of investments into their viability and technical development,
provided that such capital investments produce a significant economic effect;
in other cases provided by the law.
It can be noted here that the list of purposes established by Article 16 of the Commercial Code for
the public support of undertakings is not exhaustive and the final provision actually opens up the
potential for the Government to provide direct or indirect assistance to economic operators for
other reasons, provided that there is a law securing the relevant legal base.
Article 48 of Commercial Code also provides that the State may assist economic operators under
conditions and in the manner explicitly prescribed by the law, in order to create a beneficial
organisational and economic environment for the development of entrepreneurship, in particular
through:

the provision of land plots and the transfer of State property necessary for business
activities;

facilitation of technical assistance and the delivery of supplies, as well as information
services for business activities and for the training of personnel;

the establishment of new production and social infrastructure objects in underdeveloped
territories and the further sale or transfer of such objects to economic operators through
procedures established by the law;

the creation of incentives for technological modernisation, innovation and the
development of new products or services by economic operators;

provision of other types of a support.
Moreover, Article 18 (3) of the Commercial Code restricts the right of public authorities and bodies
of local self-governance to adopt regulatory acts or take measures that might eliminate
competition or unduly promote the business of certain competitors, or impose market restrictions
not explicitly envisaged in the legislation. At the same time, the laws of Ukraine may establish
exceptions to this rule if it is necessary to ensure national security, defence or other general public
interests.
As regards interference by the State in the market mechanism, Article 31 of the Commercial Code
defines a notion of “discrimination of undertakings by public authorities”. In particular, among
possible forms of discriminatory treatment of undertakings, Article 31 refers to the following:
11
Commercial Code of Ukraine, No. 436-IV of 16 January 2003.
25
”providing entrepreneurs with tax and other benefits that create an advantage compared to
positions of other undertakings, and resulting in monopolisation of the relevant product
market.”
Section 2 of the same Article 31 contains a prohibition of discrimination against undertakings by
public authorities. However, there is an exception for cases where discriminatory decisions or
actions by public authorities are applied in order to ensure national security, defence or some other
general interest.
In the same context, Article 15 of the Law of Ukraine “On the protection of economic competition”
expands the the scope of the prohibition on discriminatory (i.e. anti-competitive) actions by public
authorities. In particular, inter alia, the following behaviour by public authorities, local selfgovernance bodies or administrative and control bodies, is deemed to be anti-competitive:
“the provision of benefits or any advantages for certain undertakings or groups of
undertakings that place them in a privileged position compared to their competitors, and
which results or may result in the prevention, elimination, restriction or distortion of
competition."
Article 25 of the Commercial Code and Article 15 of the Law on Protection of Economic Competition
explicitly prohibit the adoption of regulatory or administrative acts by public authorities, or any
other such actions that put certain undertakings, irrespective of their ownership, in a privileged
position or otherwise violate the competition law of Ukraine. However, Article 26 of the
Commercial Code provides for a possibility to restrict competition in the cases when public
authorities or local self-governance bodies pursue the following objectives:

the provision of aid of a social character to certain undertakings provided that such aid
is granted without discrimination of other undertakings;

the provision of aid through public resources in order to compensate losses caused by
natural disasters or other emergencies, or in specific product or services markets, the
list of which should be established by the legislation;

the provision of aid, in particular through the creation of favourable economic
conditions for separate territories, in order to compensate social and economic
damages caused by severe environmental situations;

the implementation of regulatory measures related to the operation of important
national projects.
In addition, the Commercial Code of Ukraine establishes a special legal regime for State-owned
enterprises (Article 22) and municipal enterprises (Article 24), particularly, in the context of the
competition rules and bankruptcy procedures.
Accordingly, Ukraine has established a regulatory limit to the scope for public support to
undertakings within the context of competition policy (i.e. prohibition of monopolisation or
elimination of competition and anti-competitive, discriminatory measures by public authorities).
The current legislation of Ukraine also provides for a number of legitimate exceptions from specific
prohibitions on discriminatory actions by the State, provided that such exemptions are established
by the laws of Ukraine. In turn, the existing legal provisions for public support to undertakings are
rather fragmented and do not fully comply with the principles and standards under the EU State aid
rules.
26
Following several unsuccessful attempts dating back to 2002, the Law “On State Aid to
Undertakings”12 was adopted in Ukraine on 1 July 2014 and published on 2 August 2014. Essentially
it is a framework law, allowing for a three-year transitional period until it becomes fully operative.
In the meantime, it is necessary to adopt an extensive range of secondary legislation, together with
significant institutional efforts, in order to ensure a fully functioning national State aid system.
On 4 March 2013, the Cabinet of Ministers adopted an Action Plan to implement the institutional
reform for the establishment of monitoring and control of State aid to undertakings, covering the
period 2013 to 202013. This act was primarily developed in order to meet a pre-condition for
proposed EU funded Comprehensive Institution Building (CIB) Programme for the development of
the State Aid system (with an indicative budget of up to €10 million). The main activities set out in
the Governmental Action Plan include the following:

drafting the relevant legislation on State aid;

collection of data on State aid;

institutional development;

establishment of a State aid register; and

training the staff of the AMCU and other stakeholders in the future operations of
the State aid system14.
The development of a national State aid system compliant with EU standards also needs to take
account of the interpretative jurisprudence of the European Courts and the EU State Aid
Modernisation Programme, launched by the European Commission on 8 May 2012, which seeks,
inter alia, to:
12

identify new common principles for assessing the compatibility of aid with the internal
market, across various legislative acts (guidelines and frameworks);

revise, streamline and possibly consolidate State aid rules to make them consistent
with those common principles;

revise the General Block Exemption Regulation, the Enabling Regulation and the De
Minimis Regulation in the EU system; and

modernise the Procedural Regulation and create a new common State aid evaluation
method.
Law of Ukraine “On State Aid to Undertakings”, No. 1555-VII of 1 July 2014.
13
Government Decision No. 102-p of 4 March 2013 concerning the main provisions for institutional reform in
the field of State aid.
14
The Action Plan is more of a general road map for the State aid system than an Institutional Development
Plan (IDP) per se. Its biggest weakness is the absence of any indication as to how staffing and other resources
are to be mobilised and organised to create the basic institutional structures and network necessary to carry
out any of the specific actions in the Action Plan and many others that will be needed for the establishment
of the State aid System. This Action Plan was not accepted as effectively fulfilling the terms of the precondition for EU CIB funding and is currently being revised.
27
CHAPTER 3: MAIN FORMS OF STATE SUPPORT
The overall structure of State support to enterprises in Ukraine is presented below in Table 2 and in
Figure 1. This structure was developed on the basis of publicly available statistics about budget
expenditures, classified as support to economic activities, and their assessment by the experts
involved in the Study. This structure does not include public liabilities stemming from quasi-fiscal
operations; as there is very little statistical information available concerning these operations and
they have been included into the Study only to demonstrate the risk of inadequate compensation
to undertakings involved in quasi-fiscal activities the Study also analyses one example of these
activities by the National Joint Stock Company «Naftogaz of Ukraine».
The structure of public support to undertakings in Ukraine includes both forecast and actually
disbursed amounts of budget expenditures for support of economic activities. The amounts spent
and revenues foregone, as presented in Table 2 and in Figure 1, have been calculated exclusively for
the purpose of demonstrating the most popular forms and approximate volumes of public support
to economic activities in Ukraine. Further adjustments to the proposed structure may be needed
when relevant data are made available in accordance with the international accounting standards
for public finances, including fiscal accounting standards.
State support to undertakings in Ukraine have been provided mainly in the form of tax benefits,
direct subsidies and compensations from relevant budgets, as well as through State guarantees
securing borrowings by State-owned enterprises. In 2014 there were some 150 legislative
provisions providing tax exemptions and tax breaks, budget subsidies for operational needs of
State-owned enterprises and institutions including compensations for the provision of services of
general interest, as well as for providing State guarantees to undertakings in the energy and coal,
ship and aircraft building, agriculture and some other sectors. An overview of sectoral supports is
set out in Table 3.
Table 2: Structure of budget support to economic activities in Ukraine - 2011-2013
UAH. billion
%
2011
2012
2013
2011
2012
2013
Total volume of budget expenditures/ revenues
foregone due to support of enterprises
(institutions, organisations)
91.39
163.38
92.14
100
100
100
Budget subsidies and money transfers to
enterprises (organisations, institutions)
24.60
43.20
29.40
26.92
26.44
31.91
Tax benefits as budget revenue foregone
(excluding 11020255, 11020284, 11020025)
46.66
37.02
32.57
51.05
22.66
35.35
State guarantees to undertakings
12.84
75.35
21.90
14.05
46.12
23.77
Write offs of social insurance contributions
2.90
3.10
3.50
3.17
1.90
3.80
Write offs of tax liabilities (revenue foregone)
2.70
3.10
2.90
2.95
1.90
3.15
Budget support measures to restructuring of
enterprises
1.66
1.11
1.33
1.82
0.68
1.45
Budget expenditures for investment projects
financed through loans (credit) from foreign States,
banks and international financial institutions
0.03
0.50
0.54
0.03
0.31
0.58
28
Fig.1 Structure of main forms of State support to economic activities in 2011-2013
Disclaimer:
The diagrams of state support structure in Ukraine are based on the official statistics and on the experts’
assessment. The scope of quasi-fiscal operations are not included into the official statistics, although such
29
operations, presented as an example of "Naftogaz Ukraine", have been considered by the experts. In order to
present several forms of state support as a consolidated structure, both planned and actual (registered)
expenditures have been taken into account, although these will require futher clarifications due to the
introduction of International Financial Reporting Standards, including for fiscal purposes.
Table 3: Consolidated budget expenditures by sector to support economic activities, UAH million
Major expenditures
General economic, commercial
activities
Agriculture, forestry, hunting and
fisheries
% of total
Fuel and energy complex
% of total
Fuel/Energy complex components:
 coal and other industries
involved in the production of
solid fuels
 oil and gas

electricity sector

other branches of the Fuel
Energy Sector
Other industries including
construction
extraction of ores and non-metallic
mineral resources
Manufacturing industries
% of total
Construction
reproduction of the mineral
resource base
2007
807.1
2008
973.4
2009
806.8
2010
2011
2012
2013
992
2,107
3,449.9
1,490.4
8,037.7
9,630.5 6,285.6 7,326.9
7,642.8
7,486.3
7,705.1
19.8
7,350.4
18.1
18.8
15.8
15,484 11,965.3
30.2
30.1
16.7
12,055
27.5
13.4
12
15.2
10,995.9 17,448.5 15,421.5
19.2
28
30.4
5,541.4
7,227.8 6,265.7 7,433.9
10,161.2 12,835.7 15,020.2
1,416.1
7,480.9 4,162.9 3,454.2
80.7
4,078.4
32.3
130.2
413.5
916.7
746.2
568.7
305.9
242.6
262.6
361.9
620.1
420.7
185.3
228.4
126.4
1,114.6
728.2
688.6
733.7
1,205.8
1,249.7
505.5
28
43.3
47.8
49.8
81.5
123.9
82.4
458.1
99.6
196.9
281.8
526.1
261.6
17.8
1.1
0.2
0.5
0.6
0.9
0.4
0.04
45.8
124
93.6
117.1
156.4
168.3
206.6
582.7
461.4
350.3
538.6
441.8
695.9
198.7
Transport including
14,563.1 14,002.5 13,711.2 15,283.4
18,489.3 16,700.9 17,893.2
Road construction and maintenance
12,649.8 10,245.1 12,482.1
17,041.6 15,614.6 16,385.5
% of total
communications,
telecommunications
and IT
other economic sectors
Research and development in
economics
% of total
Other economic activities
31.4
191.7
11,409
31.2
141.9
20
168.3
26
174.3
29.8
184.6
25
200.3
32.3
185.6
1,377
1,110 1,153.4 2,410.5
8,919.7
6,996.3
1,100.8
1,009.4
1,326.5 1,066.3 1,179.3
1,359.6
1,289.2
962.5
2.5
6,122.1
2.6
2.7
2.7
7,898.9 3,884.2 3,677.2
2.4
6,219.6
2.1
7,556.4
1.9
5,493.3
Total
40,523
51,322 39,753 43,832
57,124
62,377
50,758
Source: Budget Reports by functional classification // Treasury service of Ukraine [web resource]. –Access :
http://www.treasury.gov.ua/main/uk/doccatalog/list?currDir=146477Офіційний
30
3.1. Subsidies
Subsidies and budget transfers have been used to address a wide range of economic and social
problems and to pursue some other policies by the Governments of Ukraine. In particular, subsidies
typically have been provided in order to:

level up economic and social conditions in different regions of the country (regional
development aspect);

facilitate employment, training and re-training of employees (development of the labour
market);

accelerate growth and restructuring in strategic industries (industrial development policy);

support R&D, new emerging markets, exports, investment activities, development of
infrastructure, etc.
The general term “subsidy” has a very wide definition in the WTO Agreement on Subsidies and
Countervailing Measures (SCMA) as “a financial contribution by a Government or any public body”
where “a benefit... is thereby conferred”. Therefore, a subsidy is deemed to exist when any
financial contribution is granted to an undertaking by any public authority (referred to in the SCMA
as the “Government”), and provided that any of the following operations is involved:
i)
a direct transfer of budget funds (in the form of grants, loans and equity capital) or
potential transfers of funds or liabilities: e.g. loan guarantees);
ii) Government revenues that are due are foregone or not collected at all (e.g. fiscal incentives
such as tax credits)15;
iii) goods or services, other than the infrastructure of general use, are provided by the
Government;
iv) payments by the Government are made to a funding mechanism a private body is
entrustedor directed to carry out one or more of the type of functions illustrated in (i) to
(iii) above, which would normally be vested in the Government and such a practice, in no
real sense, differs from practices normally followed by Governments; or there is any form
of income or price support in the sense of Article XVI of GATT 1994; and a benefit is thereby
conferred.
The Ministry of Finance of Ukraine issued orders in 2011 and 2012 which stipulate that subsidies
fall within the scope of classification codes 2610 (“Subsidies and current transfers to enterprises
(institutions, organisation)”) and 3210 (“Capital transfers to enterprises (institutions,
organisation)”)16. These codes (2610 and 3210) refer to direct budget financing of legitimate
recipients (business entities, non-governmental or other organisations), as opposed to budget fund
administrators (public authorities and public institutions). Budget fund administrators are
authorised to implement particular (governmental) budget programmes (Article 2 of the Budget
Code of Ukraine). However, recipients of the budget funds may also be involved in the
implementation of certain measures within particular budget programmes, in which case the funds
received by them are not classified in Ukraine as financial support to undertakings.
15
In accordance with the provisions of Article XVI of GATT 1994 (Note to Article XVI) and the provisions of
Annexes I through III of this Agreement, the exemption of an exported product from duties or taxes borne by
the like product when destined for domestic consumption, or the remission of such duties or taxes in
amounts not in excess of those which have accrued, shall not be deemed to be a subsidy.
16
Order No. 11 of 14 January 2011 “On Budget Classification” and Order No. 333 of 12 March 2012 “On the
approval of instructions on the use of the classification of budget expenditures and the Instruction on the use
of the classification of budget loans”.
31
In particular, under the classification code 2610, budget financing is provided for:
1) subsidies to cover the operational expenditures of recipients (enterprises, institutions,
organisations);
2) grants to producers of agricultural products;
3) subsidies to cover losses incurred by enterprises, to financially support undertakings on a
non-returnable basis and other subsidies;
4) payment of interest on loans;
5) support to non-governmental organisations;
6) money transfers from the budget to enterprises (institutions, organisations).
Under budget classification code 3210, public financing is provided for the following purposes:
1) provision of investment capital (i.e. to subsidise capital expenditures);
2) participation in the authorised capital of recipient companies ;
3) capital expenditures of higher educational establishments and research institutions in
compliance with relevant laws and regulations;
4) capital expenditures of healthcare institutions providing first aid, as well as healthcare
institutions participating in the pilot healthcare reform project and providing secondary
(specialised) care and emergency medical services under the relevant law.
All the above-mentioned expenditures are classified by the budgetary legislation as: “financial
contributions by the Government or by any public body”. Under the current classification, it is
difficult to assess the total amount of “Government assistance” within the meaning of subsidies
under the WTO Subsidies and Countervailing Measures Agreement. Certain budget expenditures
under the same classification codes may actually represent the financing of public functions, i.e.
non-economic activities (schools, research and academic institutions, health protection and
investments in public infrastructure of general use), as well as compensations to State-owned
enterprises for services of general interest. In turn, some of these measures may indeed represent
subsidies to economic activities of State owned enterprises in competitive markets.
Codes 2610 and 3210 refer to financing of general “development measures” (Order of the Ministry
of Finance of Ukraine “On Budget Classification” No.11 of 14 January 2011). In particular budget
transfers under code 2610 are deemed to encompass the following purposes:
i) R&D activities (Codes under Functional Classification of Expenditures and Lending):
-
CFCEL 0150: Fundamental and Applied Research and Development Activities in Public
Administration;
-
CFCEL 0250: Fundamental and Applied Research and Development Activities in Defence;
-
CFCEL 0370: Fundamental and Applied Research and Development Activities in Public Order, Security
and Judicial Power;
-
CFCEL 0480: Fundamental and Applied Research and Development Activities in Economics;
-
CFCEL 0530: Fundamental and Applied Research and Development Activities in Environmental
Protection;
-
CFCEL 0630: Fundamental and Applied Research and Development Activities in Housing and Utilities;
-
CFCEL 0750: Fundamental and Applied Research and Development Activities in Healthcare;
32
-
CFCEL 0840: Fundamental and Applied Research and Development Activities in Intellectual and
Physical Development;
-
CFCEL 0980: Fundamental and Applied Research and Development Activities in Education;
-
CFCEL 1080: Fundamental and Applied Research and Development Activities in Social Welfare;
ii) Economic activities:
-
CFCEL 0400: Agriculture, fuel and energy, transportation, construction, communication, etc.;
-
CFCEL 0600: Housing and utilities.
Subsidies and money transfers in the period from 2007 to 2013 ranged from 19.9 billion UAH to
43.2 billion UAH (Table 4 below).
Table 4: Subsidies and money transfers to enterprises (institutions, organisations) in Ukraine
in 2007-2013, UAH billion
Total subsidies and money transfers to
enterprises (institutions, organisations),
in total, including
From State Budget
2007
2008
2009
2010
2011
2012
2013
19.9
34.4
27.2
26.5
24.7
43.2
29.4
14.6
24.8
18.5
20.4
14.5
20.5
19.3
From Local Budgets
5.3
9.6
8.7
6.1
10.2
22.7
10.1
Source: Reports on budget expenditures by economic classification [web resource]. – Access:
http://www.treasury.gov.ua/main/uk/doccatalog/list?currDir=146477
Budget support provided in the form of subsidies and money transfers to enterprises (institutions,
organisations) from 2007 to 2013 ranged from 1.9% to 3.6% of GDP in the period (Fig. 2):
Fig. 2. Budget subsidies to enterprises (institutions, organisations) during 2007 - 2013, as
percentage of GDP
2007
2008
2009
2010
2011
2012
2013
Local
budgets
0,7
1,0
0,9
0,6
0,8
1,6
0,7
State budget
2,0
2,6
2,0
1,9
1,1
1,5
1,3
33
Consolidated
budget
2,8
3,6
3,0
2,4
1,9
3,1
2,0
Source: State Treasury of Ukraine, Reports on budget expenditures by economic classification –
http://www.treasury.gov.ua/main/uk/doccatalog/list?currDir=146477, State Statistics Service, GDP in current
prices for the respective years - http://www.ukrstat.gov.ua/operativ/menu/menu_u/nac_r.htm.
The expert assessment of subsidies by economic sectors during 2011 to 2013 demonstrates that
the biggest recipients of direct budget support (subsidies and compensations) in Ukraine were the
fuel and energy and transport sectors (Table 5).
Table 5. Structure of State subsidies by economic sectors in 2011-2013*
Subsidised Sectors
2011
2012
Actual,
Actual, UAH
million
% of GDP
Agriculture, forestry,
hunting and fisheries
759.17
0.06
811.46
Fuel and energy
complex
606,94
0.68
Other industries and
construction
564.22
Transportation
Communication,
telecommunication
and IT
Other industries
2013
Actual,
UAH million
% of
GDP
0.06
171.93
0.01
16,924.97
1.20
15,323.95
1.09
0.04
365.96
0.03
1,834.01
0.13
3414,46
0,27
28.57
0.00
213.24
0.02
7.32
0.00
200,00 .
0.02
256.14
0.02
16,419
0,00
319.40
0.03
25.06
0.00
UAH million
% of GDP
*Table is designed on the basis of expert assessment of the economical interpretation of the category of ‘sudsidy’
(Data is taken from different reports on the execution of the State Budget), The data should be taken as rough
indicators for future economic analysis only.
In the last 5 years more than 50 per cent of all subsidies have been received by enterprises located
in the Kyiv, Donetsk and Luhansk regions. This disproportion in budget support distribution can be
explained by a high concentration of coal mining and large industrial enterprises in the Donetsk and
Luhansk regions, as well as by the high degree of centralisation of the fiscal system in Ukraine. It is
also worth noting that more than 40 per cent of all budget revenue foregone resulting from tax
benefits and tax deferrals have been registered by the central office of the Fiscal Service of Ukraine.
In 2011, the share of budget revenue foregone from tax benefits involving enterprises in Donetsk,
Lugansk and Zaporozhye regions increased. The share of budget expenditures directed to support
economic activities of other regions remained quite low compared to these three regions – from 1
to 2% per region.
The Budget Code of Ukraine does not define the concept of “grants to business entities”. The term
“grant” is used exclusively in the context of inter-budgetary relations. Such budget expenditures as,
for example, compensations for the cost of maintenance and construction of roads and road
transport facilities, according to the formal purpose, are not referred to support measures available
34
for undertakings but, obviously, may become a State aid, if granted on discriminating conditions
that might restrict competition in public procurement procedures.
3.1.1. Compensation for Services of General Economic Interest and Quasi-Fiscal Activities
In the light of the current budgetary classification of subsidies and compensations, it should be
emphasised that the category of budget expenditures for “economic activities” is not fully
correlated with the declared meaning and purpose of such measures. Thus, subsidies to the coal
mining industry and to the NJSC “Naftogaz of Ukraine” can be considered, on the one hand, as
individual operational support to the enterprises but, in part at least, it may also involve
compensation for the provision of services of general economic interest.
Almost 30% of budget expenditures to support economic activities in 2011 (about 18 billion UAH)
were disbursed under the term of “general” or “other” economic activities. This approach
complicates the full identification of budget support measures.
Obviously some budget funds have been disbursed in Ukraine as a compensation for services of
general interest (or universal services), i.e. services that cannot be supplied at market prices and/or
market conditions, as well as for the implementation of some other public functions. This applied,
in particular, to undertakings in the transport, energy sectors and some parts of the agricultural
sector. 25 to 30% of compensations from the State budget were directed to cover the cost of road
maintenance works and transport services. The road development sector has also been the largest
recipient of support through budget loans. In contrast, the financial support received by industrial
enterprises in other sectors, usually did not exceed 1% of total budget expenditures.
Another example of compensation to undertakings from the State budget is provided for under the
Law of Ukraine "On employment of population"17. This allows small and medium sized enterprises
in the priority sectors, employing certain categories of workers for at least two years (and especially
long-term unemployed referred to them by job centres) to receive compensation from the State
budget for the actually paid monthly amounts of the consolidated social contribution for each such
employee. It also provides that if, within two years of the date of employment of the relevant
persons there are redundancies initiated by the SME, the compensation previously received should
be recovered in full amount to the relevant budget, unless the same job is taken by another
registered unemployed person referred by a job centre for two-year period. An SME is not eligible
for the compensation if it has arrears on consolidated social fund contributions and/or pension
insurance contributions, or if it has been declared bankrupt or is undergoing bankruptcy
proceedings.
The analysis of information concerning State budget execution under classification codes 2610
“Subsidies and money transfers to enterprises, institutions, and organisations” and 3210 “Transfer
of capital to enterprises, institutions, and organisations” since 2012 shows that 60-70% of available
funds have been directed to finance operational and capital expenditures of undertakings.
Quasi-Fiscal Activities (QFA)
QFAs are financial measures that are not directly visible in the State budget but which create
additional public liabilities in an indirect way. Such characteristics necessitate the categorisation of
a QFA as a State support instrument, which is often hidden from the public. For example, in the
case of "Naftogaz of Ukraine" the QFA demonstrates its dangerous character by increasing State
17
Law of Ukraine "On employment of population" No. 5067 of 5 July 2012.
35
liabilities by more than 285 billion UAH18. The IMF Manual on Fiscal Transparency (2007) provides
the following definition of Quasi Fiscal Activities:
“Operations carried out on behalf of the Government by public corporations or, more rarely,
private entities, which are fiscal in nature and, in principle, could be performed using specific
fiscal measures such as taxes, subsidies or other direct costs; although in some cases they may
be very difficult to identify and quantify”.19
In another IMF publication, QFAs are associated with operations that result in a net transfer of
public resources to the private sector through non-budget channels20. This definition does not
include any reallocation of resources between public corporations.
The draft IMF Fiscal Transparency Code contains the following definition of QFAs:
“Government operations carried out by institutions other than the government units (such as
Central Banks and other public corporations). Examples include concessional loans given by the
Central Bank, directed towards lending by public corporations and the requirement to provide
services at below-market prices”. 21
The essence of QFA becomes evident when their main effects and features are singled out:
(1) QFAs distort the picture regarding the Government’s true fiscal position as well as its size
and the volume of GDP redistribution through the budget, because the amounts do not
appear in the budget;
(2) generate significant contingent liabilities;
(3) may lead to Central Bank losses, thus contributing to monetary expansion and resulting in
crowding out and increasing debt;
(4) applied as taxes and subsidies, they may cause undesirable redistributive effects22;
(5) they are usually launched by a simple administrative decision.23
By their economic nature, QFAs can be divided into quasi-fiscal revenues – operations that increase
net assets of institutions that do not belong to the general government management sector
(GGMS), and quasi-fiscal subsidies – operations that reduce net assets. The prevalent type of QFA is
the quasi-fiscal subsidy, because this provides a possibility to reduce the budget deficit and debt
burden in the short term. There are three categories of expenditures that could be made by the
Government:
18
See also Chapter 5.1.4 on the effects of compensations through QFA in the case of "Naftogaz of Ukraine".
19
Manual on fiscal transparency/Fiscal Affairs Dept., International Monetary Fund (2007-2007) [Web
resource]. - Access: https://www.imf.org/external/np/fad/trans/rus/manualr.pdf.
20
Tchaidze R. Quasi-Fiscal Deficit in Nonfinancial Enterprises / R. Tchaidze [Web resource].Access:
http://www.imf.org/external/pubs/ft/wp/2007/wp0710.pdf.
21
Fiscal Transparency Code (Consultation Draft of 1 July 2013) [Web resource]. - Access:
http://www.imf.org/external/np/exr/consult/2013/fisctransp/pdf/070113.pdf.
22
Tchaidze R. Quasi-Fiscal Deficit in Nonfinancial Enterprises / R. Tchaidze [Web resource]. - Access:
http://www.imf.org/external/pubs/ft/wp/2007/wp0710.pdf.
23
Manual on fiscal transparency/Fiscal Affairs Dept., International Monetary Fund (2007—2007) [Web
resource]. - Access: https://www.imf.org/external/np/fad/trans/rus/manualr.pdf.
36
(1) Charge-free provision of collective public services to the community;
(2) The provision of goods and services to households free of charge or at prices which are
economically insignificant;
(3) Transfers to other institutional units for the purpose of redistribution of national income or
wealth.
The State may completely or partially compensate for the losses associated with the QFA in the
form of subsidies from the budget or by increasing the share capital of the relevant enterprise. In
the first case, this leads to an increase in the budget deficit, while in the second case it does not
affect the deficit because it is believed that in this way the Government increases its assets.
By delegating the functions of quasi-fiscal subsidy provision to public enterprises and the Central
Bank, the Government guarantees that their expenses related to these transactions will be offset
by subsidies from the State budget, or by an increase of their share capital, or otherwise. In the
absence of any compensation of these costs from the budget, the profitability of these institutions
is reduced, resulting in tax and dividends losses for the budget. Therefore, these institutions are
forced to exercise their borrowing under clear, documented government guarantees (which, in the
case of their failure to pay, results in the need for their repayment and servicing from the budget),
or implicit Government guarantees.
The impact and effects of quasi-fiscal subsidies on the public sector deficit on a cash basis and on
the public debt is different. In the case of subsidies, the budget deficit and public debt rise, while in
the case of increasing the share capital, the budget deficit is not increased, while the public debt is
increased. Tax and dividend losses do not affect the budget deficit and public debt, but they
underestimate the level of GDP redistribution through the budget. In the case of State guarantees
and the allocation of funds for loans guaranteed by the State, the public deficit and public debt are
increased at the time when there is a call on a provided guarantee; i.e. with some time lag in
comparison with the case of quasi-fiscal subsidies.
In 2011, in compliance with the IMF requirement to ensure transparency in budget financing, the
following definition of QFA was included in the Budget Code of Ukraine:
“Operations by governmental bodies and by bodies of local self-governance, by the National
Bank of Ukraine, by the State Social Security and Pension Insurance Funds, by undertakings in
the public sectors and in the utilities sector that are not reflected in the budgetary indicators but
may lead to a decrease in budgetary revenues and/or require additional budget expenditure in
the future24.
3.2. Tax Benefits
3.2.1. Brief Overview of the Tax System
The legal foundations of the national tax system25 are established in the Constitution of Ukraine
(Articles 67 and 92), in the Tax Code (effective since 1 January 2011)26 and the Customs Code of
Ukraine (with regard to customs duties and their administration), as well as in international
24
The Budget Code of Ukraine: the law of Ukraine from 08.07.2010 № 2456-VI [Web resource]. - Access:
http://zakon2.rada.gov.ua/laws/show/2456-17.
25
As defined by Article 3 of the Tax Code of Ukraine.
26
Tax Code of Ukraine adopted by Law of 02 December2010 N 2755-VI.
37
agreements on the avoidance of double taxation and cooperation in the sphere of taxation
approved by the Verkhovna Rada of Ukraine.
The tax legislation of Ukraine guarantees non-discrimination of taxpayers (regardless of ownership
or nationality)27. The taxation system is based on the principle of tax neutrality, and is aimed at
ensuring that taxes and duties established by the State should not undermine the competitiveness
of individual taxpayers28.
However, Article 30 of the Tax Code provides for a legal possibility to establish tax advantages
(incentives), specifically defining the following.
Article 30 of the Tax Code – Tax benefits
“30.1. Tax benefit is an exemption of a taxpayer from the obligation to calculate and pay
taxes and duties as provided under the Tax and Customs legislation of Ukraine, or payment
of such taxes and duties in a smaller amounts due to the existence of specific characteristics
in a certain group of taxpayers, or due to specific types of activities or the object taxation, or
specific character or social importance of expenses incurred by the relevant taxpayers (as
envisaged by Section 30.2 of the same Article).
….30.3. Taxpayers may use tax benefits from the moment when relevant legal grounds for
the benefit have been established and throughout the term of its effectiveness.
…30.5. Tax benefits, the procedure and legal grounds for their granting, shall be established
exclusively in this Code through decisions of the Supreme Council of the Autonomous
Republic of Crimea and bodies of local self-governance, adopted in accordance with this
Code and without prejudice to the requirements of the legislation of Ukraine on protection
of economic competition.
30.6. Amounts of taxes and duties not paid by an undertaking to the relevant budgets, due
to tax benefits shall be accounted for by the taxpayer - undertaking. Accounting records for
these amounts shall be kept in accordance with the procedure established by the Cabinet of
29
Ministers of Ukraine.
30.7. Control authorities shall consolidate information concerning amounts of tax benefits of
legal entities and sole entrepreneurs and determine budget revenues foregone due to tax
benefits.
30.8. Control authorities shall overview the accuracy of accounting records and registration
of tax benefits, as well as the compliance with the intended use, provided that there exist a
legislative definition of such a purpose (specifically concerning contingent tax incentives),
and the timely repayment of unpaid amounts to the budget due to availability of tax benefit,
and in case it is granted on the repayable basis. Misused or untimely repaid tax benefits
shall be recovered to the relevant budget with an interest at the rate of 120 per cent per
annum of the discount rate established by the National Bank of Ukraine.
30.9. Tax benefits are granted through the following means:
a) tax deductions (discounts) which reduce the tax base before calculation of due
taxes and duties;
b) reduction of tax liabilities after due taxes and duties have been calculated;
c) establishment of reduced tax and duty;
27
Tax Code of Ukraine Article 4 (4.1.2).
28
Ibid. Article 4.1.8.
Decree by the Cabinet of Ministers of Ukraine of 27 December 2010 No.1233 “On the procedure for
accounting of taxes and duties not paid by undertakings to budgets due to tax benefits”.
29
38
d) exemption from taxes or duties.”
According to Article 8 of the Tax Code, there are two categories of taxes and duties in Ukraine:
“State” and “local”. In particular, Article 9 of the TCU (2014) established the following State taxes
and duties:
1. Corporate income tax (CIT)
2. Personal Income Tax
3. Value added tax (VAT)
4. Excise tax
5. Environmental Tax
6. Rent for pipeline transportation of oil, oil products, natural gas and ammonia
7.
Rent for the use of subsoil natural resources
8. Land tax
9. Fee for the use of radio frequencies
10. Fee for the industrial use of water
11. Fee for the use of forests
12. Flat rate agricultural tax
13. Duty for development of wineries, horticulture and hop growing farms.
14. Duty on title registration
15. Duty for the use of special tariff for electric and heating energy (excluding electricity supplied
by qualified CHP capacities)
16. Duty for the use of special tariff for natural gas by industrial consumers of all forms of
ownership
17. Duty for the first registration of transportation vehicle.
Article 10 of the Tax Code defined the following local taxes and duties:
1.
Real eState tax (other than land);
2.
Flat rate tax from entrepreneurs;
3.
Duty for specific business activities;
4.
Parking fees;
5.
Tourist duty.
The Tax Code of Ukraine adopted in 2010 significantly reduced the number of taxes and duties from
40 to 22 (see Table 6 below).
Table 6: Taxes and duties before and after adoption of the Tax Code of Ukraine in 2010
Under the Law of Ukraine “On the Taxation
Under the Tax Code (after 2010)
39
System" (before 2010)
Total
number of
taxes and
duties
(mandatory
payments)
40
Including
National
9
Taxes
12
Local
3
National
16
Duties
28
Local
12
Total number of
taxes and duties
(mandatory
payments)
22
Including
National
9
Taxes
11
Local
2
National
8
Duties
11
Local
3
The Ukrainian tax system has undergone several transformations. In 1997 the reform was directed
at the simplification of administrative procedures and the increase of the budget revenues and a
number of tax exemptions were cancelled. The next stage of the reform in 2004 was aimed at the
reduction of the fiscal burden on taxpayers in order to induce investments. The later reform in 2010
focussed on the codification of various tax provisions into the Tax Code of Ukraine.
In 28 December 2014, during preparation of this Study, the newly elected Verkhovna Rada of
Ukraine approved Law No.71-VIII “On amendments to the Tax Code of Ukraine and certain
legislative acts of Ukraine concerning Tax Reform”. This dramatically decreased the number of taxes
and duties both on the national and local levels. As a result, there are only 7 national taxes and
duties and 4 local taxes and duties from 2015. These are:
Types of taxation in Ukraine from 2015
National taxes and duties: Corporate Income Tax, Personal Income Tax, VAT, Excise Tax,
Environmental Tax, Rental payments and State duty.
Local Taxes and Duties: Property Tax, Consolidated Tax for Entrepreneurs, Parking Fees and
Tourism Duty.
Article 11 of the Tax Code of Ukraine envisages the possibility for the establishment of special
taxation rules for certain categories of undertakings, but such special regimes may be established
only in the Tax Code, and central or local authorities cannot establish other taxes or compulsory
payments.
3.2.2. Benefits related to Corporate Income Tax
Since 1 January 2014 the standard corporate income tax for undertakings in Ukraine is established
at the rate of 18% of taxable income (in 2013 the CIT rate was 19%).
Capital gains are viewed as normal income and taxed accordingly at the standard CIT rate. In
principle, losses may be carried forward to future periods indefinitely, with some exemptions, but
carrying losses backwards is not permitted.
Software developers and producers (IT sector) are taxed at a lower rate of CIT (5%) in the period
from 1 January 2013 to 1 January 2023.
Small businesses and sole entrepreneurs may opt for a simplified, flat rate taxation (not available
for foreigners). The income tax rate under the simplified taxation regime amounts to either 5% or
40
10% of the total turnover (depending on VAT obligations and the particular category of the
business).
The most recent data on the budgetary revenues foregone due to the lower rates of corporate
income tax in the period 2011 - 2013 shows that such budget “losses” across all sectors amounted
annually to 12 million UAH on average, representing only 1% of Ukraine’s GDP (see Table 7 below).
41
Table 7: Budgetary revenue foregone resulting from Corporate Income Tax (CIT) benefits
Budget revenues foregone
Benefit
code
Percentage of the GDP (%)
(billion UAH).
Tax measure
2011
2012
2013
2011
2012
2013
11020170
Tax exemption for gross expenses related to exploration (follow-up
exploration) and the cost of equipment for oil and gas fields (excluding
the cost of construction of oil and gas wells, other costs associated
with acquisition (construction) of fixed assets depreciated under Article
8 of the Law).
22.71
-
-
0.002
11020268
Tax exemption for energy sector enterprises’ income within the limits
of expenditures set up in the investment programmes approved by the
NERC. The purpose of the programmes is capital investment in the
construction (reconstruction, modernization) of inter-State, high–
voltage grids and (local) power distribution networks, and/or of the
amounts directed to repay credits (loans) to finance the above
objectives.
263.46
974.97
760.96
0.020
0.069
0.052
0.08
2.8
0.45
0.000
0.000
0.000
Power Engineering
Tax exemption for 80 % of the income received by undertakings from
sales on the customs territory of Ukraine of goods of their own
manufacturing in compliance with the list approved by the Cabinet of
Ministers of Ukraine, in particular:
- equipment using renewable energy sources;
11020269
- materials, raw materials, equipment and components, to be used
for manufacturing of energy from renewable energy sources;
- energy saving equipment and materials, products which ensure
saving and rational use of energy resources;
- equipment for measuring, control and management of fuel and
energy resources consumption;
- equipment for the production of alternative fuels.
11020275
Tax exemption for income of enterprises in electricity generation
sector from their principal activities (Class 40 NACE group 40.11 DK
009:2005), which produce electricity exclusively from renewable
energy sources
121.17
454
593.59
0.009
0.032
0.041
11020281
Tax exemption for income of biofuels producers derived from the sale
of biofuels;
245.25
15.48
17.83
0.019
0.001
0.001
11020282
Tax exemption for income derived by combined heat and power
producers provided they use biofuels or producing heating energy
using biofuels;
733.07
548
0.01
0.056
0.039
0.000
11020283
Tax exemption for income of enterprises producing machinery,
equipment and installations defined in Article 7 of the Law of Ukraine
«On Alternative Fuels», aimed at manufacturing and reconstruction of
machines and transport vehicles, including self-propelled agricultural
machines and power plants that use biofuels, received from sales of
such machinery and equipment produced on the territory of Ukraine.
1.43
0.64
0.30
0.000
0.000
0.000
1 387.17
1 995.89
1 373.14
0.107
0.141
0.094
11020155
Taxable income excludes expenses incurred by enterprises in the
sector due to the obligation of free supply of coal to households of coal
miners, to pensioners who had been engaged in the underground
mining works for at least 10 years, or in the surface works at least
during 20 years; to disabled persons who have been injured or
obtained occupational illness at the coal mining enterprises; to families
of coal miners killed on the job and entitled for a pension in connection
with the loss of their breadwinner and according to the procedure
defined by the Cabinet of Ministers of Ukraine
20.93
-
-
0.002
11020247
Taxable income excludes operational expenses (other than financing)
not directly related to production and/or sales of goods, performance
of works, provision of services) and includes the cost of coal and coal
briquettes donated to persons on the list of occupations, and in the
scope and in accordance with procedure approved by the Cabinet of
Ministers of Ukraine, including compensation for the cost of the
83.31
106.41
85.87
0.006
0.008
0.006
Total for Power Engineering Sector
Coal Mining
43
donated coal and coal briquettes to the following categories;
-
mining (processing) industry workers;
-
pensioners who have worked for the coal mining enterprises
for at least 10 years in the underground operations, or at least
7 years and 6 months for women; or as a worker related to
underground operations at least for 15 years for men and 12
years and 6 months for women; or as a worker engaged in
surface operations of existing mines or mines under
construction at cutting, processing and briquetting capacities at
least for 20 years for men, or 15 years for women;
-
handicapped veterans of war and veterans of labour, persons
awarded with “Miner’s Glory’ or ‘Miner Valour’ medals of I, II,
III category;
-
disabled persons provided that they had this right before their
disability;
-
families of workers who died (received occupational illness) on
coal mining (processing) enterprises and receiving pension for
the loss of the breadwinner .
Total for coal mining sector
104.24
106.41
85.87
0.008
0.008
0.006
7.09
4.16
74.26
0.001
0.000
0.005
7.09
4.16
74.26
0.001
0.000
0.005
806.72
845.82
-
0.062
0.060
0.000
Shipbuilding
11020276
Tax exemption for income derived from core shipbuilding activities
(class 35.11 group 35 NACE DK 009: 2005) Industry;
Total for shipbuilding sector
Aircraft construction
11020277
Income Tax exemption for aircraft producers generated from main
activities (subclass 35.30 35.30.0 class group 35.3 section 35 KVED DK
009:2005), and from R&D activities (subclass 73.10.2 class 73.10 group
73.1 section 73 KVED DK 009: 2005) carried out to meet the needs of
aircraft building;
44
11020289
Tax exemption for income of aircraft producers generated from core
activities (class 30.30 group 30.3 Section 30 NACE DK 009: 2010), and
those related to research and development activities (class 72.19 group
72.1 Section 72 NACE DK 009: 2010), which are carried out for the needs
of aircraft construction;
Total aircraft manufacturing sector
-
8.73
387.10
0.000
0.001
0.027
806.72
854.55
387.1
0.062
0.061
0.027
Agribusiness
11020242
Non-taxable base for taxpayers whose main activity is agricultural
production shall comprise amounts of land tax for plots not used in
agricultural production cycle.
0.12
0.09
-
0.000
0.000
11020278
Tax exemption for income of mechanical engineering firms engaged in
agro industrial complexes (class 29.31 i 29.32 group 29.3 of section 29
KVED DK 009: 2005).
70.62
32.88
52.39
0.005
0.002
0.004
Total agribusiness
70.74
32.97
52.39
0.005
0.002
0.004
2,898.39
3,469.81
2,471.10
0.223
0.246
0.170
11020255
If the calculation of the taxable income of a resident taxpayer for the
entire fiscal year is negative, such negative value shall be included in the
scope of expenses for the first quarter of the next fiscal year. The
calculation of taxable income for six months, three quarters of the year
and for the entire fiscal year shall take into account the negative value
of the previous year as part of expenses of such tax periods cumulatively
until full repayment of such negative value. If the calculation of the
taxable income of a resident taxpayer in the first quarter of 2011 shows
a negative value, then the amount of such negative value shall be
included in the expenses of the second calendar quarter of 2011.
Calculation of the taxable income for the second and third quarter, of
the second – fourth quarter of 2011 shall take into account the negative
value of tax obtained by the taxpayer for the first quarter of 2011 as
part of expenditures of such tax periods cumulatively until full
repayment of such negative value.
9,425.57
4,547.64
-
0.724
0.322
11020025
Non-taxable income in accordance with the international treaties of
3,085.63
3,274.64
3,062.13
0.237
0.232
Total budget revenues forgone, excluding the following
45
0.210
Ukraine
11020284
If, the cost of purchasing particular securities and other corporate rights
by the taxpayer exceeds income received (accrued) from alienation of
securities or other corporate rights of the same type during the same
reporting period, the negative financial result is transferred to reduce
financial obligations from operations with securities or other corporate
rights in the next periods as specified in Article 150 of Tax Code.
Total budget revenues foregone due to preferential rates of corporate income tax
46
-
3,816.69
-
15,409.59
15,108.78
5,533.23
0.270
1.183
1.071
0.380
3.2.3. Benefits related to Value Added Tax
Value added tax (VAT) in Ukraine is levied on all internal sales and imports of goods and services.
Since 1 April 2014 the VAT rate is 20% (tax base is taken as the contract value but this may not be
lower than the so called “fair market price”). Medical supplies are currently taxed at the rate of 7%.
The TCU provides for a number of VAT exemptions, often justified by social, educational, medical or
industrial development purposes. For example, sales of the following products and services are
exempt from VAT:

baby food produced by special dairy distribution services,

domestically produced periodical press and books,

goods designed for people with disabilities,

medicines and other items required for medical purposes,

passenger transportation services,

land plots,

domestically produced software (in particular computer games, websites, etc.).
3.2.4. Budget Revenue Foregone Due to Tax Benefits
The exact amount of budget revenue foregone (i.e. budget losses due to various tax benefits)
during in the last 5 to 10 years is difficult to estimate due to a lack of statistical information and
numerous legislative changes. This difficulty is increased due to the devaluation of Hryvna, which
makes estimations of the real value of budget revenue foregone during different periods unreliable
or even impossible. However, rough estimations of budgetary revenue foregone due to preferential
VAT and CIT rates during the period from 2005 to 2013 can be seen from Table 8 below.
An overview of budget revenue foregone due to exemptions from taxes and duties (mandatory
payments) by regions of Ukraine can be also found in Annex 1 to this Report. The relevant statistics
on budget revenues foregone during a particular year are calculated and published annually on 1
January of the following year.
Significant fluctuations of the total budget revenue foregone due to tax benefits indicates a certain
rising trend in the period up to 2008 - 2011 and a sharp decreasing trend from 2012 to 2013 , show
certain inconsistency in regulatory policy. As a result, final figures for 2014 are likely to show that
total budget revenue foregone due to tax benefits in 2014 will not even reach the level of 2010 in
nominal terms, although the national currency has been devalued by the end of 2014 by more than
50 per cent since 2010 30. This reflects lack of criteria in granting of public support to undertakings
in Ukraine in the years following the international financial crisis and economic slowdown in
Ukraine. Figure 3 below demonstrates a reduction of budget revenue foregone due to CIT and VAT
privileges for certain undertakings.
30
On 16 February 2010: USD 1 was 7,985 UAH; on 6 January 2015: USD 1 was 15,77 UAH
Table 8: State Budget revenue foregone due to tax benefits in (UAH million)
Tax
Corporate income tax
UAH million
GDP, %
2008
2009
2010
2011
2012
2013
2008
2009
2010
2011
2012
2013
1,674.9
1,995.6
2,097.5
15,409.6
15,108.8
5,533.2
0.18
0.22
0.19
1.19
1.08
0.38
9,425.6
4,547.6
0.73
0.32
amount 11020255 (moving the
negative value of the object of
taxation)
amount 11020284 (negative
financial result from operations
with securities)
3,816.7
0.27
CIT (excluding 11020255,
11020284 , 11020025)
591,2
415,7
492,1
2,898
3,469
2,471
0,06
0,05
0,05
0,22
0,25
0,17
amount 11020025 (Income not
subject to taxation in accordance
with international treaties of
Ukraine.)
1083,7
1579,9
1605,4
3085,6
3274,6
3062,1
0,11
0,17
0,15
0,24
0,23
0,20
Land fee
484.1
594.8
886.7
254.7
359.2
671.1
0.05
0.07
0.08
0.02
0.03
0.05
Value added tax
20,593.9
25,517.5
34,039.6
41,375.7
30,271.4
26,204.3
2.17
2.79
3.15
3.18
2.16
1.81
Excise tax on excisable goods
(products) made in Ukraine
0.7
0.3
0.8
2,011.1
2,765.5
3,221.5
0.00
0.00
0.00
0.15
0.20
0.22
114.1
154.1
0.7
0.01
0.01
0.0
Excise tax on excisable goods
(products) imported into the
customs territory of Ukraine
Total revenues lost from all taxes
and fees
22,845.4
28,207.6
37,127.4
59,166.6
48,659.1
35,630.9
2.41
3.09
3.44
4.55
3.46
2.46
Total budget revenue foregone
(excluding 11020255, 11020284,
11020025)
21,761,7
26,627,7
35,522,0
46,655,4
37,020,2
32,568,8
2,30
2,9
3,28
3,58
2,62
2,24
Source: Compiled on basis of the data of the State tax authorities (Form 12-ПВ) for the respective years.
Fig.3
Table 9: Budget revenue foregone due tax benefits by economic activities
from 2007-2012, UAH million
Economic Activity
Total budget revenue foregone
(excluding 11020255, 11020284,
11020025 ), including:
Agriculture, hunting and related
services
Food and drinks production
Wholesale and retail trade (including
pharmaceuticals, oil, gas and solid
fuels); trade in motor transport
vehicles and transport repair services;
Educational services
Production of chemicals
Financial services
Agriculture, hunting and related
services
Food and drinks production
Wholesale and retail trade (including
pharmaceuticals, oil, gas and solid
fuels); trade in motor transport
vehicles and transport repair services
Educational services
Production of chemicals
Financial services
2007
2008
2009
2010
2011
2012
46,655.4
37,020.2
16,789,2
21,761,7
26,627,7
35,522,0
3,252.0
4,241.2
7,837.7
11,324.8
12,826.3
14,456.0
*
2,913.0
*
4,928.9
2,271.2
2,792.3
1,556.7
2,460.2
2,752.7
1,980.6
2,987.7
4,187.6
4,549.6
5,365.4
1,025.7
1,355.4
1,550.6
1,752.6
2,139.2
1,587.2
570.5
733.1
766.2
513.9
*
647.0
*
1,884.2
1,508.8
3,087.8
27.5
39.0
5.9
7.9
11.5
13.3
4.6
4.3
1.4
4.1
4.0
8.3
304.8
381.4
281.8
429.1
Share of Total (%)
19,4
19,5
29,4
31,9
13,5
12,8
5,8
6.9
11.8
13.7
15.7
12.8
6.1
6.2
5.8
4.9
1.8
1.8
2.1
2.2
1.7
2.0
2.8
1.4
Source: Developed by experts with the use of Reports by the State Fiscal Service (Ф 12PV-KVED)
3.3. State Guarantees
According to Article 199(2) of the Commercial Code of Ukraine, State guarantees can be granted to
public sector enterprises to secure their obligations with domestic and international lenders. In
practice, there have been several State guarantees provided to secure the liabilities of private
sector entities, for example, related to the national project for the organisation of the “EURO-2012”
football championship.
In the majority of cases State guarantees have been granted to secure the obligations of the State
owned borrowers implementing investment programmes. However, in certain cases, the State
provided guarantees to support the operational needs and maintain the profitability of public
undertakings.
State guarantees are issued to secure borrowing from foreign and domestic banks and international
financial organisations and the procedures for the provision of State guarantees to undertakings
borrowing from domestic and foreign lenders are similar.
According to Article 17 of the Budget Code of Ukraine, State guarantees should be granted by a
decision of the Cabinet of Ministers and in accordance with the requirements of international
treaties of Ukraine. State guarantees are used exclusively for the purposes envisaged by the budget
law of Ukraine for relevant year as particular budgetary programmes. Such written instruments are
issued with a specific indication of the following details:

purpose of the guarantee;

full name and address of the relevant borrower and lender;

loan amount ;

guaranteed amount;

settlement procedure; and

triggering event for calling upon the State guarantee and other relevant conditions.
The Ministry of Finance, as the public authority implementing budgetary policy of the State (or
relevant local authorities) sign contracts with the undertakings, whose liabilities are guaranteed by
the State. The essential terms of such contracts include the following:

the undertaking’s obligation to pay a premium on the State guarantee;

provisions concerning collateral or other security for the undertaking’s liabilities guaranteed by
the State;

reimbursement of the State (local) budget expenses incurred due to payment of guaranteed
amounts; and penalties for a delay in the reimbursement of those expenses.
State guarantees cannot be given to hedge the existing liabilities of undertakings; provided that the
payments under the loan agreement are made directly from the State (or local) budget (excluding
loans (credits) received from international financial organisations).
Payments guaranteed by the State are made in accordance with relevant agreements (regardless of
the funds allocated for this purpose in the State Budget Law of Ukraine) and the procedure
established in Article 16(6) of the Budget Code. The payments are accounted for as budget loans to
undertakings, whose liabilities are guaranteed by the State.
50
The Ministry of Finance of Ukraine is entitled to transfer its right to claim recovery of budget loans
outstanding for more than three years, as well as the amounts paid under State guarantees, in
accordance with the procedure established by the Cabinet of Ministers of Ukraine.
The cap (ceiling) for the total amounts of public debt and State guarantees is defined in Article 18 of
the Budget Code of Ukraine (in a particular Resolution on the local budget). The total public debt
and publicly guaranteed liabilities of undertakings shall not exceed 60% of the nominal gross
domestic product of Ukraine31. If this threshold is exceeded, the Cabinet of Ministers of Ukraine is
required to take measures to bring the total amount of public debt in line with the requirements of
the law.
In order to ensure compliance with the thresholds (ceilings) requirement for public debts and State
guarantees, the Ministry of Finance maintains a Register of public and guaranteed debt, where it
registers all guarantees issued by the central Government and local authorities.
The register of public debt and liabilities guaranteed by the State is an information system,
containing the terms and conditions of loan agreements, issued sovereign securities, terms of State
guarantees and data concerning the servicing and repayment of public debt.
The type and amount of collateral for budget loans (credits) or fees under State guarantees are
defined by the Decree of the Cabinet of Ministers “On approval of the procedure for the assessment
of the need, amount and type of collateral required for budget loans (credits) or State guarantees”
No. 460 of 13 April 2011.
An overview of such State guarantees to undertakings for the years 2010 to 2013 is given in Table
10 below.
Table 10: State guarantees provided to undertakings in 2010 - 2013 (UAH, million)
Undertaking
2010
2011
2012
2013
Ukreksimbank, Export Development Project
1,198.5
State Mortgage Institution
2,000.0
5,000.0
Ukravodor
3,499.4
2,997.1
14,000.0
5,000.0
NJSC "Naftogaz of Ukraine"
29,776.1
8,796.5
SE "Fininpro"
4,497.8
5,496.1
4,396.2
Southern Railway
2,077.1
State Enterprise " Yangel Design Bureau ”Pivdenne
2,073.7
Ukreksimbank, Energy Efficiency Project
1,596.1
"Lisichanskvugillia" PLC
679.1
"State Food and Grain Corporation of Ukraine" PLC
23,979.0
Ministry of Energy and Coal Industry of Ukraine
1,500.0
Department of Energy, Transport and Communications of
113.5
the Vinnitsa City Council
National Agency for preparation and organisation of the
644.3
UEFA Euro Cup Championship - 2012 and for the
implementation of relevant infrastructural projects
Department for Capital Construction of Kherson City
198.8
Council
Department for Capital Construction of Vinnitsa City
36.4
Council
State Agency for Investment and National Projects of
608.0
Ukraine
Total
10,074.3 12,842.1
75,349.8
21,897.5
Source: Information on the given state guaratnees in 2004 – 2013; Ministry of finance of Ukraine [web
source], access: http://www.minfin.gov.ua/control/uk/publish/archive/main?cat_id=74685
31
This is the same as the debt ceilingin the EU Maastricht criteria for EU Member States.
51
State guarantees are not included in the gross State expenditure budget since they do not directly
affect the budget as losses or revenue foregone. According to the Ministry of Finance, the total
amounts of corporate borrowings guaranteed by the State from 2007 to 2013 were the following:
2007
2008
2009
2010
2011
2012
2013
2014
5.9 billion UAH
1.0 billion UAH
32.1 billion UAH
10.1 billion UAH
12.8 billion UAH
75.4 billion UAH
21.9 billion UAH
17.4 billion UAH
Fig.4
A list of State guarantees issued by the Government during the period 2011 to 2013 is provided in
Annex 2. It shows the lenders, borrowers, project titles, currencies and amount of each State
guarantee.
According to the Decree of the Cabinet of Ministers “On some aspects of capital expenditures by
main budget administrators in excess of approved budget allocations” No. 404 of 3 June 2013, State
guarantees were provided for the total amount of 3.1 billion UAH to support the implementation of
six social and economic development projects. By 30 April 2014, the total amount of State loans
actually disbursed under the terms of this Decree was 1.08 billion UAH. These guarantees were
used for the following social and economic development projects:

“Construction of the first phase of the Dniester PSP, comprised of three units” (Decree of the
Cabinet of Ministers No. 521 of 17 July 2013). By 30 April 2014, the actual amount received by
this project was 915.6 million UAH;

“Upgrading the rolling stock of bus and trolley parks” (Decree of the Cabinet of Ministers No.
596 of 17 July 2013). By 30 April 2014, the actual amount received by the project was about
100.9 million UAH;
52

“Construction of Keletskaya street and tram line from the Kvyateka Street to the central bus
station Zakhidyi 2 in the city of Vinnitsa" (Decree of the Cabinet of Ministers No. 733 of 17 July
2013). By 30 April 2014, the actual amount received was about 8.9 million UAH;

“Construction on an overpass from Admiral Senyavin Avenue to Zalaegerszeg Street in
Kherson” (Decree of the Cabinet of Ministers No. 851 of 21 November 2013). The funds
allocated for this project by 30 April 2014 amounted to 55.4 million UAH;

“On service and repayment by budget managers of borrowings under State guarantees for
capital investments” was financed in the amount of 549.4 million UAH according to the Law
“On State Budget of Ukraine for 2014” (under code line 3511590).
In 2010, as part of the the programme for the preparation for the “Euro-2012” football
championship, State guarantees were provided entirely for the development of infrastructure
projects, highways and railroads: in 2011 and 2012, their share gradually decreased (to 66 and 25%,
respectively).
3.4. Writing-off Debts and Penalties
Writing off the debts of State-owned enterprises to budgets and social insurance funds was quite a
common practice in Ukraine during the 1990s. Sometimes, debts to the Pension Fund of Ukraine
reached twice as much as the required monthly contributions. Periodic write-offs of certain
undertakings’ liabilities to the Pension Fund can undermine the social security system in general
and encourage other enterprises to ignore their own liabilities. Therefore, the Government
introduced a prohibition on writing off debts of undertakings to the Pension Fund and established
penalties for non-payments. By 2014, the writing off of corporate debts was practically terminated.
At the same time, a special regime for the social security obligations of academic institutions,
military, national security and some other categories of public institutions, financed through
relevant budgets continues to exist. Certain benefits are also envisaged for shipbuilding enterprises
and firms employing disabled people (organisations managed by associations of disabled people).
The Law of Ukraine "On obligatory State pension insurance" No. 1258-18 of 7 July 2014 provides
that fines, penalties and other disciplinary sanctions for failure to pay compulsory contributions, as
well as their coercive collection by the State Executive Service are not applicable to sole
entrepreneurs due to their selection of the single consolidated tax regime. The amounts of
pecuniary sanctions imposed by the State Pension Fund of Ukraine for non-payments by sole
entrepreneurs have been written off.
The Law of Ukraine "On decreasing the debts of strategic and coal-mining enterprises to the Pension
Fund of Ukraine and the restoration of pension rights of their employees" No. 2508-VI of 9
September 2010 envisaged the writing-off of fines and penalties imposed by the State Pension Fund
for non-payments by coal-mining and peat-mining enterprises, as of the date when this Law
entered into force. This included debts that were to be settled in instalments. The write-offs by
these enterprises were offset by the writing-off of the equivalent debts of the State Pension Fund
to the State Treasury accrued under budget loan agreements. Relevant settlements with the
budgets and the subsequent balancing of the State Treasury accounts were made in accordance
with the special resolutions of the Cabinet of Ministers of Ukraine.
The above Law applies to all enterprises, regardless of ownership and type of business activities.
Some of those undertakings are on the official list of so-called "strategic enterprises" for the
national economy and security approved by the Cabinet of Ministers of Ukraine. Their employees
are covered by pension insurance in accordance with the Law of Ukraine "On Obligatory State
Pension Insurance". That Law envisaged the possibility for the repayment of debts in instalments,
specifically for the following categories of debts:
53

arrears on compulsory contributions to the State Pension Fund, calculated in accordance
with the Law of Ukraine "On Obligatory State Pension Insurance" as of the date when that
Law entered into force;

fines and penalties that have not been duly paid or charged in accordance with the Law of
Ukraine "On obligatory State Pension Insurance", as of the date when that Law entered into
force.
The Law of Ukraine "On the State Budget of Ukraine for 2010" No. 2154-VI of 27 April 2010
provided grounds for writing-off debts to the social insurance fund by coal and peat producing
enterprises supervised by the Ministry of Energy and Coal. These debts concerned compensation of
preferential pensions (including the cost of delivery) and debts regarding pecuniary sanctions and
penalties not paid by 1 March 2010. Debt write-offs by these enterprises were offset further by
write-offs of the equivalent amounts of debts of the State Pension Fund under the loans received
from the State Treasury. The appropriate budget adjustments and the balancing of the Treasury
account were made in accordance with a special procedure approved by the Cabinet of Ministers of
Ukraine. The social insurance contributions for the period of debts were recorded in the system of
personalised files as if relevant payments had been made in full.
Advantageous debt restructuring schemes have also been approved for some important industrial
sectors, in particular, for energy and shipbuilding enterprises.
Thus, specific measures on improving the financial position of particular undertakings in priority
sectors have been provided for by the Laws of Ukraine “On economic experiment aimed at State
support to the shipbuilding Industry” No. 5209-VI of 6 September 2012 and “On certain issues
concerning debts of defence industry enterprises - members of the industrial group “Ukrboronprom”
and ensuring their sustainable development” No. 5213-VI of 6 September 2012.
In 2010 similar benefits were given to enterprises in the fuel and energy sector through the Law of
Ukraine "On amendments to the Law of Ukraine 'On measures ensuring sustainable functioning of
enterprises in the fuel and energy sector' regarding the procedure for the payment of debts" No.
2940-VI of 13 January 2011.
For enterprises in the defence industry (not included otherwise in this Study), the writing-off of
debts has been provided for under the Law of Ukraine "On Certain Issues related to the
Indebtedness of Defence Industry Enterprises included in the 'Ukroboronprom' State Concern and
Ensuring Their Sustainable Development" No. 5213-VI of 6 September 2012. This Law provided for
write-offs of arrears by defence industry enterprises (including those established by court decisions
and those being restructured), as of the date when that Law entered into force. It covered arrears
to the Pension Fund of Ukraine, and the Social Funds (i.e. Social Insurance Fund for Temporary
Disabilities, the State Social Insurance Fund against Unemployment, the Social Insurance Fund
against Occupational Accidents and Occupational Illnesses), particularly with reference to
compulsory contributions to:

State Pension Insurance;

State Social Insurance;

Amounts of compensation for preferential pensions (including the costs of delivery),
academic pensions;

Amounts of due fines and penalties;

Amounts of fines and penalties that are to be imposed on the date of coming into force of
the Law.
In addition, this Law allowed the writing-off of defence enterprises’ arrears resulting from ordinary
business operations, namely:
54

arrears accrued by the defence industry enterprises as of 1 September 2012 and not paid by the
date the Law came into force (including those acknowledged by court decisions and
restructured indebtedness) to producers, transporters and suppliers of heating energy and
natural gas at the regulated tariffs, such as “Naftogaz of Ukraine” and its subsidiaries ;

arrears accrued by the defence industry enterprises as of 1 September 2012 and not paid by the
date the Law came into force (including those acknowledged by court decisions and
restructured indebtedness) to electricity suppliers at the regulated tariff;

arrears accrued by the defence industry enterprises as of 1 September 2012 and not paid by the
date the Law came into force (including those acknowledged by court decisions and
restructured indebtedness) to water suppliers and sewage services providers;

arrears accrued by the defence industry enterprises as of 1 September 2012 and not paid as of
the date the Law came into force (including those acknowledged by court decisions and
restructured indebtedness) on penalties, fines and other pecuniary sanctions (3 per cent per
annum plus inflation rate) for non-payments to natural gas suppliers and gas transportation
companies, to heating energy, electricity and water suppliers and sewage services providers;

arrears accrued by producers, transporters and suppliers of heating energy as of 1 September
2012 and not paid by the date the Law came into force, to natural gas suppliers equivalent to
the amounts of arrears written off by the defence industry enterprises subject to relevant
procedure;

arrears accrued by water suppliers and sewage services providers as of 1 September 2012 and
not paid by the date the Law came into force, to electricity companies, equivalent to the
amounts of arrears written off by the defence industry enterprises subject to relevant
procedure;

arrears accrued by electricity distributors at the regulated tariffs (including those acknowledged
by court decisions and restructured indebtedness) as of 1 January 2007 and not been paid by
the date the Law came into force, to electricity wholesalers in the amounts not exceeding
arrears written off by the defence industry enterprises in accordance with the procedure for
writing-off debts for consumed electricity, water supplies and sewage services;

arrears accrued by electricity wholesalers (including those acknowledged by court decisions and
restructured indebtedness), as of 1 January 2007 and not paid by the date the Law came into
force, to electricity producers in amounts not exceeding the arrears written off by the defence
industry enterprises in accordance with the procedure for writing off debts for consumed
electricity, water supplies and sewage services;

arrears accrued by “Naftogaz of Ukraine" as of 1 September 2012 and not been paid by the date
the Law came into force (including those acknowledged by courts), due to the implementation
the Cabinet of Ministers’ decisions, before the State Reserves Agency of Ukraine for supplies of
natural gas;

arrears of electricity producers (including restructured debts) effective as of 1 September 2012
and not paid as of the date the Law came into force, to the State Reserves Agency of Ukraine for
consumed natural gas, received in accordance with decisions of the Cabinet of Ministers of
Ukraine through the temporary borrowing scheme and valued at the price established on the
date of receipt of the natural gas.
Table 11 below provides data on the legal basis for writing off debts by undertakings during 2011 to
2013.
55
Table 11: Resolutions by the Cabinet of Ministers on writing-off of debts and on State
guarantees 2011-2013
No
1
2
3
4
5
6
7
Title of Resolution
“On amendments to the procedure for allocation of funds envisaged by the State
Budget for restructuring of coal and peat industries”
(240 million UAH as direct subsidy for debt repayment by said enterprises)
Registered
No. 916 of 18
December
2013
“On certain issues concerning provision of State guarantees in 2013 to secure debt
obligations under the bonds issued by the National Joint Stock Company “Naftogaz
of Ukraine”
(State guarantees for repayment of bonds by Naftogaz (4.8 bn. UAH)
“On amendments to the procedure, terms and conditions of subsidies from the
State budget to local budgets in 2013 in order to repay debts originating from
differences in tariffs for thermal energy, centralized water supply and sewage
services, produced and supplied to the population, due to disproportions between
the actual cost of thermal energy and centralized water supply and sewage services
and the tariffs approved and/or agreed upon by public authorities or local selfgovernance”
No. 885 of 4
December
2013
(Budget subvention to local budget (1.3 bn UAH) to cover debts accrued due to
differences in utilities tariffs)
“On certain issues concerning provision of State guarantees in 2013 in order to
secure obligations of the National Joint Stock Company “Naftogaz of Ukraine”
No. 865 of 27
November
2013
No. 840 of 13
November
2013
(State guarantee is issued for partial coverage of commercial loan of Naftogaz of
Ukraine (UAH 4.25 bn.)
On certain issues of refinancing of debts of the National Joint Stock Company
“Naftogaz of Ukraine”
On certain issues concerning activities of the National Joint Stock Company
“Naftogaz of Ukraine” in 2013”
No. 686 of 21
August 2013
No. 618-p of
17 July 2013
Allocation of budget support in the amount of UAH 13.9 bn. for operational deficit of
liquidity in Naftogaz of Ukraine (including compensation of differences in the cost of
gas and selling prices for heat and power generation (UAH 5.8 bn.)
“On approval of the Procedure for writing-off debts of the Pension Fund of Ukraine
under the loans provided from the funds of the Single Treasury Account, in the
amount of the debts written off by Defence Industry Enterprises”.
No. 104 of 13
February
2013
8
“On amendments to certain Resolutions of the Cabinet of Ministers of Ukraine
concerning Writing-off Debts of Fuel and Energy Sector Enterprises”.
9
“On approval of Procedure for writing-off debts for the consumed natural gas and
electricity”.
No. 1229 of
30 November
2011
No. 894 of 8
August 2011
In addition to this long and non-transparent list of Cabinet of Ministers of Ukraine Resolutions
giving the benefit of debt write offs to a number of enterprises in particular strategic economic
sectors (priority for the National Joint Stock Company “Naftogaz of Ukraine”), further laws were
adopted, in particular, in the energy sector, which made oversight of write offs even more nontransparent. As an example, the Law of Ukraine “On certain issues concerning debts for consumed
natural gas and electricity” No. 3319-VI of 12 May 2011, (repealed on 1 July 2012) is relevant and
illustrative. This Law provided benefits to all enterprises that produce, transport and supply thermal
56
energy and electricity, or were involved in the management and control of Ukraine’s united energy
system, or were suppliers of natural gas and electricity at the so-called “regulated tariff”. In
particular, it concerned the National Joint Stock Company “Naftogaz of Ukraine” and its
subsidiaries, namely the State-owned enterprises “Gas of Ukraine”, “Ukrtransgas”,
“Ukrgazvydobuvannia”, “Energorynok and the Joint Stock Company “ChornomorNaftogaz”.
According to this Law, the following debts were written off:
1. Debts for consumed natural gas by the above listed enterprises, including liquidated
enterprises, as of 1 January 2010 (including restructured indebtedness), outstanding at the date
when the Law entered into force, including:

Debts of the State-owned enterprise “Gas of Ukraine” to the National Joint Stock Company
“Naftogaz of Ukraine” (including restructured indebtedness) in the amount of written-off
debts of undertakings producing, transporting and supplying thermal energy, or supplying
natural gas at the regulated tariff, to the State-owned enterprise “Gas of Ukraine”;

Receivables of the suppliers of natural gas at the regulated tariff from their customers for
the gas consumed as of 1 January 2010 should be credited to special current accounts of
those undertakings to be used exclusively for the implementation of investment
programmes.
2. Debts for consumed electricity, which consisted of the following:

debts of undertakings supplying electricity at the regulated tariff to the State-owned
enterprise “Energorynok” in the amount not exceeding the amount of debts written off by
these entities;

debts of the State-owned enterprise “Energorynok” to producers of electricity in the
amount that did not exceed the amounts of restructured debts by these enterprises and/or
restructured debts to the State Reserve Agency of Ukraine in compliance with the relevant
decision of the Cabinet of Ministers of Ukraine;

debts of the State-owned enterprise “Energorynok” to enterprises transmitting electricity
through high voltage and inter-State power grids;

liabilities of the State-owned enterprise “Energorynok” in financing the construction of
wind farms under the Comprehensive Wind Farms Construction Programme.
These write-offs are implemented in accordance with the Cabinet of Ministers’ Resolution “On
approval of the procedure for writing-off debts for consumed natural gas and electricity” No. 894 of
8 August 2011. The procedure approved by the Cabinet of Minister’s Resolution provided that
consolidated reports on written off debts should be submitted to the Ministry of Energy and Coal
by the 25th of each month: the national Joint Stock Company “Naftogaz of Ukraine” was to write off
debts for consumed gas and the State-owned enterprise “Energorynok” could write off debts for
consumed electricity.
A further form of State support in this context has been the settlement of arrears by instalments.
This mechanism, for instance, has been used to support undertakings in the coal mining industry.
The Law of Ukraine "On Settlement of Arrears of State owned Enterprises in the Coal Mining
Industry in Contributions and Fines (Penalties) to Social Insurance Fund Against Occupational
Accidents and Occupational Illness" No. 332-VII of 18 June 2013 provided that arrears of coal mining
companies in contributions and fines (penalties) to the Social Insurance Fund, including those
acknowledged by court decisions, may be paid by instalments. The amounts of unpaid
contributions accrued by State-owned coal mining enterprises to the Social Insurance Fund and the
amounts of fines (penalties) charged due to the unpaid contributions may be paid in instalments
during a maximum period of 60 calendar months after the date of conclusion of the relevant
agreement with the local office of the Social Insurance Fund’s Directorate. In order to obtain its
57
permission to settle the arrears by instalments, a coal enterprise must apply to the local office of
the Fund’s Directorate within 90 calendar days after this Law came into force.
Information about the exact amount of debts written off by the State is not publicly available.
Currently, the official reports by the State Treasury of Ukraine provide information only about
outstanding debts of undertakings under budget loans and/or under State guarantees, and this only
as at the beginning of a fiscal period in the relevant reports.
However, as the above lists prove, the practice of writing off debts and penalties has been applied
to support the financial position of strategic, export oriented State-owned enterprises, which are
indispensible for national security and defence. Moreover, the writing off of certain penalties and
pecuniary sanctions for arrears in taxes and duties, accumulated by 1 January 2013, has been
permitted for shipbuilding enterprises.
Apart from the fact that the amounts of this benefit are not publicly available, this system is very
lacking in transprency and has undoubtedly influenced the competitive situation of the relevant
markets involved. As can be seen from the list of enterprises that benefitted from the laws and
Resolutions of the Cabinet of Ministers, State-owned enterprises have been the main recipients of
these benefits. The most negatively affected institution, as a result of the writing off of the various
debts and the creation of the particular benefits for certain enterprises, has probably been the
Social Security Fund.
58
CHAPTER 4: HORIZONTAL SUPPORT
4.1. Support for Regional Development
4.1.1. Legal framework for regional development in Ukraine
The general legal, economic and organisational foundations of regional development in Ukraine are
formulated in the Laws of Ukraine “On foundations of State regional policy” No. 156-VII of 5
February 2015, “On local self-governance of Ukraine” No. 280/97-ВР of 21 May 1997, “On State
Targeted Programmes” No. 3421-IV of 9 February 2006, “On public forecasting and formation of
economic and social development progammes of Ukraine” and “On the stimulation of the
development of regions” No. 2850-IV of 8 September 2005.
The recently adopted Law “On foundations of State regional policy”of 2015 sets out the general
principles for the formation and coordination of regional development programmes and projects. In
Articles 20 to 22 it also establishes mechanisms and sources of financing for such programmes and
projects. More specifically, in Article 21 it is provided that the regional development policies shall
be financed through:
1. the State budget, in particular, the State Regional Development Fund (SRDF);
2. Local budgets;
3. Donations;
4. Funds of International Organisations;
5. Other legitimate sources.
The financing through the SRDF is to be based on the following principles:
1) compliance with the current State Regional Development Strategy and relevant action
plan;
2) selection of programmes (projects) for regional development through a competitive
procedure;
3) efficient use of mobilised resources;
4) ability of entities and projects to independently mobilise further funding or actually
maintain the objects of investment from the local budget;
5) adequate financial involvement of local authorities in the jurisdiction where relevant
measures, programmes or projects are being implemented;
6) equitable distribution of SRDF funding depending on the level of social and economic
conditions in the relevant territorial and administrative units.
The procedure and terms for financing of regional development programmes and projects is to be
established by the Cabinet of Ministers of Ukraine.
59
Article 3 of the Law “On the stimulation of development of regions” of 2005 establishes that the
Cabinet of Ministers of Ukraine also must approve a National Regional Development Strategy,
whereas regional councils (including the Supreme Council of the Crimean Autonomy and the City
Councils of the cities of Kyiv and Sebastopol) should approve their own regional development
strategies. The coordination of implementing measures by public authorities at the central and local
levels is fixed by agreements on regional development signed by the Cabinet of Minister of Ukraine
and relevant councils. The contents and requirements for regional development agreements are
stipulated in Articles 4 -6 of the 2005 Law.
The 2005 Law also provides a definition of so called “depressed territories”, establishes economic
and social indicators qualifying depressed territories, their categories and means of public support,
namely:

public investments in communications networks, industrial and social infrastructure;

financial support of SMEs, innovation, business consultative centres, venture funds, etc.

provision of international technical assistance funds in order to address social and
environmental problems, to facilitate employment, to finance professional training and support
migration of labour and health protection.
The scope of budget financing for regional development and support to depressed territories is
defined annually in the Law on the State Budget and in decisions of regional and local councils
concerning relevant local budgets. After the State budget is approved by the Parliament, the
amounts to finance measures under regional development agreements are adjusted to the actual
availability of funds in the State budget.
On 6 September 2014, the Cabinet of Ministers of Ukraine approved a new comprehensive “State
Strategy for Regional Development for the period until 2020” (Decree № 385). This document has
replaced the previous Strategy for regional development for the period until 2015 adopted by
Cabinet of Ministers of Ukraine Decree No. 1001 of 21 August 2006.
Currently the regional structure of the Ukrainian economy is characterised by the following:

increased concentration of economic activities in the city of Kyiv that produces almost 20% of
GDP and has accumulated almost 50% of foreign direct investments. This economic imbalance
has been created due to the increased population in Kyiv and the high level of migration from
other regions; nearly 75% of the Kyiv region population is employed in the services sector; the
majority of the population has higher education degrees. At the regional level, economic
activities are also concentrated around regional centres;

growing social and economic disparities between large cities and small rural towns and villages,
where economic activities have declined and the population numbers have decreased by more
than 30%;

Inefficient administration of regional development programmes and non-transparent
mechanisms of financial support for regional development projects; an absence of clearly
defined public policy on regional development, inefficient mechanisms for the coordination of
relations between the central Government and regions as well as interregional relations, weak
organisation of regional and local public authorities and delays in administrative and territorial
reform.
The new Regional Development Strategy for the period until 2020 States the following:
60
“events of early 2014 on the Crimean peninsula in the south-eastern regions of Ukraine, are the result of
failures and shortcomings of the domestic and foreign policies of Ukraine, including weaknesses of
regional development policy.
Out-dated technology and mono-functional industry in the Donetsk and Lugansk regions and the
orientation on exports of raw materials mainly to the Russian market have created inefficient market
structures and dependence on external supplies, including energy. The State industrial policy based on
granting of individual preferences to the coal mining and steel producing sectors, did not contribute to
the competitiveness of these regions. Local politics have led to the foreclosure of regional markets and
their actual integration into the Russian market.
As a result, in addition to the economic problems in these regions, despite relatively high average wages
compared to other regions, there are increased intra-regional disparities regarding the development of
infrastructure, public services in the spheres of education, culture, health, environmental protection and
others. Under those circumstances, development has been taking place mainly in the regional centres
whereas rural mining towns and villages declined. The consequences of those trends are a significant
stratification of population by income, high unemployment, social discontent of population in those
regions, and the creation of the basis for the manifestation of separatism.”
The new Government Strategy intends to coordinate the targets and priorities of sectoral policies
with the goals and objectives of regional development. This applies in particular to the
development of:







transport and infrastructure;
business and investment;
business and regulatory environment;
competition policy;
labour market;
education and research;
innovation.
In terms of public support to economic activities and business in the regions, the main political
priority of the Government, both on the central and local levels, is the creation of conditions for
investments into regional development projects (programmes). In particular, investment projects
should be primarily targeted at the development of transport infrastructure at local and interregional level – construction and maintenance of roads, street engineering projects, trains and train
cars, buses, and other means of transportations. Another priority area is energy saving projects and
the development of energy generation from alternative sources of energy (biofuels, solar energy
etс.).
The Government intends to use budget co-financing, loans, credit lines, preferential taxation,
compensations and various regulatory measures to support energy saving, the development of
telecommunications infrastructure, innovation through the promotion of techno parks and
industrial parks, scientific research and regional training centres, providing better business
environment and access to financing for SMEs and incentives for the creation of new jobs.
The new Regional Development Strategy for the period until 2020 will be implemented in two
stages:
- Stage 1 (2014 -2016) – (in addition to the central priority of stabilising the economic and social
situation in the Eastern regions of Ukraine, recovery of Ukrainian jurisdiction over the territory of
the Crimean Autonomy after the military conflicts and annexation by Russia), it is foreseen that
the Government should focus primarily on the constitutional, legislative and regulatory
framework for the reorganisation and redistribution of powers between the central and regional
61
Governments and the redistribution of public finances to strengthen the material and financial
capacities of local self-governance. A substantial part of this work will be dedicated to the
development of institutional structures for the planning, coordination and monitoring of the
results of the Strategy implementation. The general outcome of the Strategy at the first stage is
to create general economic and regulatory conditions for an effective competitive environment
in the regional markets, including the minimisation of anti-competitive decisions and practices of
public authorities and local Governments. In terms of allocation of public resources, the first
stage of the Strategy implementation is concentrated on financing of investment projects in
priority sectors for regional development, namely;

to promote advanced energy production, efficient energy technologies, production of
electricity from renewable energy sources and alternative fuels;

to support investment in residential housing projects.
- Stage 2 (2017-2020) – following the results of administrative and constitutional reforms that
would strengthen the financial and decision-making positions of the regions and the institutional
infrastructure of local self-governance the Government will focus on financing and implementing
public infrastructure projects to enhance inter-regional and intra-regional integration and the
support of innovative cross-sectoral projects within regional development programmes designed
to meet the needs of individual regions and territories. It is also foreseen that, in the second
stage of the implementation of the Regional Development Strategy, it will be feasible to:

expand the scope of the regional development agreements and allocate more resources for
their implementation;

create inter-regional and intra-regional networks for innovation and the dissemination of
skills and knowledge;

stimulate regional labour markets taking account of the particular economic indicators and
competitive advantages of each region;

promote the development of regional market infrastructure, in particular, by eliminating or
reducing barriers for entry into the regional commodity markets and the exit of producers
from these markets;

increase investment in civil engineering projects, including water supply in rural areas, and
the development of information and communication networks and road transport
infrastructure;

ensure equal access to education and professional training, improve the quality of
education;

spread the positive experience of the pilot project in reforming the health care system,
thereby increasing the availability and effectiveness of medical care regardless of the region;

improve the territorial placement of cultural establishments, particularly in rural areas;

improve the quality of housing services by creating a competitive market for such services.
The previous Regional Development Strategy for the period up to 2015 was not implemented to the
full scope of measures and results declared for a range of reasond, including:
-
absence, inconsistencies or inadequacies of the legislative framework for efficient public finance
management (including constitutional foundations for regional administrative and budgetary
competences, mid-term and long-term public finance planning required for the implementation
of regional development programmes, deficiencies in the legislation on public procurement,
62
inefficient mechanisms of control over State support to undertakings and the selection of
regional development projects that need State support etc.);
-
a lack of institutional infrastructure required for the coordination of measures at the central and
regional levels, regional development projects, including bad performance and lack of financing
for the State Regional Development Fund (established in 2012 as the main instrument for
financing regional development).
4.1.2. Support of investments
The rights of investors in Ukraine are guaranteed by constitutional provisions (Articles 41-42 and 92
section 2), by provisions of the Commercial Code of Ukraine32 (Chapters 38-40), by the Law of
Ukraine “On investment activities” No. 1560-XII of 18 September 1991, by the Law “On the
protection of foreign investors” (1991) and several laws approving bilateral or international
agreements, establishing the regime for the mutual protection of foreign investments.
The "Law on Investment Activities" of 199133, with numerous amendments, provided a number of
specific definitions, such as “public investments” and “investment projects eligible for State
support”. In December 2014, the Government submitted to the Parliament a revised version of the
Law; enhancing powers of the Cabinet of Ministers of Ukraine with regard to the assessment of the
feasibility of investment projects. It contains procedural requirements for the registration and
selection of investment projects and investment proposals that need State support. Article 12(1) of
this Law provides that State support for investment projects may be provided in the following
forms:
1. co-financing from the State budget;
2. provision of credits from the State budget funds and/or State guarantees to secure
commitments of undertakings implementing approved investment projects with lenders;
3. fully or partially compensating interest payments under commercial loans received by
undertakings implementing registered investment projects;
4. other forms of public support (including participation of the State in the share capital of
undertakings implementing investment projects).
In order to receive budget support, the investment project should be registered by the MEDT in the
State register of investment projects and investment project proposals in accordance with Article
12(2) of the Law of Ukraine "On investment activities".
Article 105 of the Budget Code of Ukraine stipulates basic principles for the public financing of
investment projects:

economic efficiency of the investment programme (project), measured by a minimum amount
of budgetary funds required for support of the project;

the project should create, reconstruct or rehabilitate municipal assets (especially, if
construction and reconstruction works at the object is ready for utilisation at least by 70 per
cent);
32
33
Commercial Code of Ukraine, No. 436-IV of 16 January 2003
Since its adoption in 1991, many amendments have been made to this Law .
63

the project completion period should be no longer than the standard budgetary period, and
necessary financial resources are provided from local budgets, or through credits (loans) under
the State and/or local guarantees, and subsidies should depend on the project’s performance
throughout the whole period of its implementation;

the project should enhance production capacities, communication networks and social
infrastructure that increases the attractiveness of the territory for investment;

the recipient of State support should contribute to budget revenues:


for projects financed through the budgets of villages, towns, town associations and
cities of regional significance, the contribution should be at least in the amount of 1 per
cent of the received subsidies;

for projects financed through the budgets of the Autonomous Republic of Crimea,
regional and local budgets, budgets of the city of Sevastopol and cities of the national
and regional significance, the contribution should be at least 3 per cent of the
subsidised amount;

for projects financed through the budget of the city of Kyiv, the contribution should be
at least 5 per cent of the subsidised amount;
sufficient justification should be provided of the recipient’s ability to further sustain the
municipal property at the expense of local budgets.
The distribution of public financing for investment programmes (including regional projects) is
carried out under the procedure established by the Cabinet of Ministers’ Decree No. 520 of 18 May
2011 with regard to the objectives of the relevant State Regional Development Strategy, regional
development strategies where parameters are based on actual and forecast indicators of economic
and social development of relevant territories, These indicators are the level of industrial output or
gross agricultural output, amounts of investment in productive capital, density of the population,
unemployment rate, income per household, income per capita and average monthly wages.
The project selection criteria for State support are defined by Article 12 (paragraph 1) of the Law of
Ukraine “On Investment activities” and the procedure is established by the Decree of the Cabinet of
Ministers “On approval of the procedure for the selection of project (investment) proposals and
investment projects developed or implemented with State support” No. 835 of 13 November 2013.
The preliminary selection of investment projects is carried out in a competitive process organised
by the responsible public authorities that set up evaluation committees (except for projects where
support is provided in the form of State guarantees - these projects are selected by an evaluation
committee under the Ministry for Economic Development and Trade).
The MEDT carries out the evaluation and competitive selection of the relevant investment
programmes (projects), taking into account the indicative SRDF forecast amount for a particular
budgetary period. The MEDT evaluation committee analyses proposed investment projects on a
competitive basis and provides necessary recommendations to project initiators and to the MEDT
that makes a decision. Recommendations for approval of investment projects are submitted to the
MEDT annually by 1 July of the year preceding the planned investment activities and a completed
list of selected investment projects to be financed through the SRDF is submitted by MEDT to the
Cabinet of Ministers for its approval by 1 August of the year preceding the project inception.
The Ministry of Economic Development and Trade also approved a registration procedure for
investment projects subject to State financing and, as of December 2014, there were 42 investment
projects and 3 project proposals registered by the MEDT following positive expert conclusions on
64
the economic feasibility of the projects. Positive expert conclusions have also been given in regard
to 3 project proposals and 80 projects34.
In 2014, the Verkhovna Rada adopted several legislative acts, aimed at further business
development and investment activities in Ukraine, namely:

Law of Ukraine “On amendments to certain legislative acts of Ukraine concerning the protection
of investors’ rights” No. 1255-VII of 13 May 2014, amending the Labour Code, the Commercial
Code and the Civil Code of Ukraine and the Law of Ukraine “On Joint Stock Companies” with
provisions concerning dismissal and liability of corporate managers;

Law of Ukraine “On amendments to the Tax Code of Ukraine concerning improvement of
taxation for investment activities” No. 1690-VII of 7 October 2014, providing incentives for
private investors in the sector of extraction of mineral resources in Ukraine. These
amendments refer to the taxation regime for operations concerning distribution agreements.
It is worth mentioning that in December 2014 the Cabinet of Ministers of Ukraine approved an
Action Plan based on the Parliamentary Coalition Agreement that also has certain priorities for the
support of investment activities, specifically by the following means:
1. Reduction of administrative pressure on businesses;
2. Protection of investor’s rights;
3. Facilitation of administrative registration procedures for businesses, particularly, related to:
a. abolition of mandatory phytosanitary control of 33 plant-types in Ukraine;
b. abolition of mandatory monitoring and research services required to comply with
special conditions for the use of natural resources in Ukraine;
c. establishment of equal conditions for businesses and the abolition of tax reliefs for
imports of energy-efficient equipment in order to reduce losses to the State budget.
4.
Attraction of investments (by opening possibilities for the extension of fiscal obligations of
public-private partnerships development, rehabilitating and modernising economic
infrastructure, the improvement of risk assessment methods and distribution of risks between
public and private parties and methods of calculation of concession fees).
5.
Improvement of the system of administrative services.
4.1.3. State Regional Development Fund
Article 24-1 of the Budget Code of Ukraine defines the main principles of the State Regional
Development Fund (SRDF). Thus, the SRDF is responsible for the implementation of:
34

the National Regional Development Strategy and relevant regional development strategies;

national development projects and investment projects within regional development
programmes;

regional development agreements and programmes for the support of economically
depressed territories;

State programmes for cross-border cooperation; and
Information is based on the materials posted on http://www.me.gov.ua.
65

programmes and projects for the social and economic development of the regions,
including measures by individual administrative units (in particular, small towns, mountain
villages, surveillance areas, etc.).
The SRDF is a component of the general State budget. The law requires that the State budget for
two future fiscal periods should allocate at least 1 per cent of the total planned revenues of the
general State Budget funds to SRDF. However, in practice, the SRDF has never received this level of
funding from the State budget. In real terms, the SRDF amounted to 1,641.5 million UAH in 2012
(0.509%) and in 2013 it was even lower at 987.5 million UAH - corresponding to 0.3% of total
budget revenues.
The Decree of the Cabinet of Ministers of Ukraine No. 656 of 4 July 2012 establishes a procedure for
the preparation, evaluation and selection of programmes and activities to be financed through the
SRDF and for the disbursement of its funds. The procedure is targeted at the implementation of
Article 24-1 "State Regional Development Fund" of the Budget Code of Ukraine.
Since 2010, the Cabinet of Ministers of Ukraine has been providing financial resources under the
budget programme "Public capital expenditures covered by the Cabinet of Ministers of Ukraine".
Thus, in 2010, financing in the amount of 2.4 billion UAH was approved under this programme; but
none of the planned activities have been actually financed. In 2011, only 21.7 million UAH was
transferred for the implementation of the programme (while the approved budget for this
programme was 2.8 billion UAH). In 2012 and again in 2013, no funds were spent (approved
budgets were 2.0 billion UAH and UAH 1.4 billion UAH respectively). For 2014, a total budget of 2.5
billion UAH was approved; but data for the 1st quarter of 2014 show that no activity was actually
funded).
The Cabinet of Ministers of Ukraine adopts annual decrees on the financing of investment
programmes:

CMU Decree "Some issues on the use of State capital expenditures in 2011" No. 761-p of
27 July 2011;

CMU Decree "Some issues concerning the use of budgetary funds for financing public
capital in 2012" No. 177-p of 21 March 2012;

CMU Decree "Some issues concerning the use of budgetary funds for financing public
capital in 2013" No. 76-p of 11 February 2013.
These decrees are the legal bases for the distribution of budget funds to Ministries, other public
institutions, the Council of Ministers of the Autonomous Republic of Crimea and the State
administration of the city of Sebastopol. The annual budget laws define the "consolidated amount"
to be distributed by the Ministry of Finance under the budgetary programme "Public capital
expenditures covered by the Cabinet of Ministers of Ukraine". Article 23 (6) of the Budgetary Code
provides that budgetary funds shall be transferred from one recipient to another to finance
functions or services established by the decision of the Cabinet of Ministers of Ukraine and
approved by the Budgetary Committee of the Verkhovna Rada of Ukraine.
However, the existing approach to the distribution of resources for capital expenditures is lacking
transparency, since the Verkhovna Rada, approving relevant expenditures, does not consider
particular objectives and criteria for the use of those funds. Access to such information for the
general public is also limited. Thus, while the publicly available Decrees by Cabinet of Ministers
contain the legal basis for distribution of relevant financial resources among the Ministries and
other public institutions for certain projects, the exact criteria for the selection of those investment
projects are non-transparent and it is difficult to monitor the achievement of particular objectives
by the recipients of State financing.
66
The Council of Ministers of the Autonomous Republic of Crimea and the State Administration of the
city of Sebastopol, in principle, established only very general directions and the total amount of
required financing for each territory. The distribution of funds, according to those objectives should
be further approved by the Council of Ministers of the Autonomous Republic of Crimea. The
existing approach increased the dependence of local authorities (cities and villages budgets) on the
decisions of regional administrations.
4.1.4. Special (free) Economic Zones
The general principles on the creation, functioning and liquidation of special (free) economic zones
in Ukraine are provided by the Ukrainian Constitution, the Commercial Code of Ukraine and the
Law of Ukraine "On general principles on the creation and functioning of special (free) economic
zones" (Law No. 2673-XII of 1992). In particular, the Commercial Code (Article 401 of Law No. 436IV of 16 January 2003) provides the following definition:
“1. A special (free) economic zone is a part of the territory of Ukraine, with a special legal
regime for economic activities and a procedure for application under Ukrainian legislation.
Within a special (free) economic zone there can be introduced preferential customs, taxation,
and monetary and financial conditions for domestic and foreign investors.
2. Special (free) economic zones are created in order to attract investments and to efficiently
use them, to facilitate, in cooperation with foreign investors, business activities in order to
increase exports, supplies of higher quality products and services to the domestic market, to
introduce new technologies, develop market infrastructure, improve the use of natural, material
and human resources and accelerate the social and economic development of Ukraine.”
The Commercial Code also provides for the objectives for SEZs, types and general guarantees for
investors, as well as the scope of application of Ukrainian legislation in such economic zones.
Specific economic incentives and additional guarantees for investors are defined in special laws. 12
Special Economic Zones were established in Ukraine in the period 1992-2005 according to the
following laws:

Law of Ukraine “On special economic zones and special regime for investment in Donetsk region” of
24 December 1998 (No. 356-XIV in the revised version of 2006);

Law of Ukraine “On special economic zone of recreation type “Courortopolic Truskavets”, No.514XIV of 1999;

Law of Ukraine “On special economic zone “Yavoriv”, No.402-XIV of 1999.

Law of Ukraine “On special economic zone “Slavutych”, No. 2013-III of 2000;

Law of Ukraine “On special economic zone “Mykolayiv”, No. 1909-III of 2000;

Law of Ukraine “On special economic zone “Porto Franko” at the territory of Odessa Commercial Sea
Port”, No. 1607-III of 2000;

Law of Ukraine “On special economic zone “Reni”, No.1605-III of 2000;

Law of Ukraine “On special investment regime in priority development territories and on special
economic zone “Port Krym” in the Crimean Autonomous Republic”, No. 2189-III of 21 December 2000
(ineffective since 18 December 2014);

Law of Ukraine “On special economic zone “Transcarpathian”, No. 2322-III of 2001.
Since the late 1990s, the 12 special economic zones established in Ukraine targeted the attraction
of only 1.2 billion UAH in foreign direct investments. Most of the SEZs have been established, either
to facilitate tourism and recreational activities, or as import–export operations and facilities for the
transit of commodities through Ukrainian territory. Only three zones (in Donetsk, Azov and Kharkiv)
67
have been established with the purpose of supporting industrial development.
In the 2008-2009 period, "special economic zones", as a concept, were completely discredited in
Ukraine as they became associated with tax benefits that resulted in substantial budget losses
coupled with corruption practices and fake business activities.
With the adoption of the Tax Code in 2010 all tax benefits which applied earlier to undertakings
operating in SEZs have been practically abolished. Today, the situation is rather paradoxical. From a
legal standpoint, the legal provisions ensuring the special treatment regime and advantageous
conditions for investment and carrying out business activity in SEZs are still in force. In reality,
however, special economic zones are closed since they have become subject to general taxation
and no special incentives are being provided for enterprises in those territories.
Thus, the report submitted by the Ukrainian Government to the WTO Committee on Subsidies and
Countervailing Measures on 7 July 2011 (G/SCM/N/220/UKR) contained the following information
concerning preferential treatment of undertakings in special (free) economic zones and priority
development territories:
“In the reporting period the investment projects in SEZ and in Priority Territories are
implemented under the regular tax regime. During reporting period there have not been any
changes in respect to policy/objective, background and authority, form of the subsidy, to whom
and how the subsidy may be provided, in comparison with information given in
G/SCM/N/155/UKR of 26 May 2008 and G/SCM/N/186/UKR of 3 July 2009.
Some tax privileges have been granted under court rulings only.”
The benefits used by undertakings in 2000 - 2009 are set out in Table 12.
Table 12 Support to special economic zones and territories of priority development in 2000-2009
Year
GDP in
factual
prices, mln
UAH
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
20002009
176128
211175
234138
277355
357544
457325
565018
751106
990819
947042
The indices,
deflators, share
to the previous
year
1,102
1,053
1,082
1,153
1,241
1,149
1,228
1,29
1,126
The indices,
deflators until
2000
1
1,10
1,16
1,26
1,45
1,80
2,06
2,53
3,27
3,68
Amount of
received tax
benefits in
these
territories, mln
UAH
316,40
574,50
1 104,60
1 890,60
4 769,40
1 849,30
1 325,10
1 354,80
40,00
64,20
13 289,10
Share of received tax
benefits in these
territories compared
to GDP
0,19
0,28
0,49
0,71
1,38
0,42
0,24
0,19
0,00
0,01
3,91*
*average value
In comparable data on average 10 years the share of tax benefits received by SEZ and TPD
to GDP was 0.36 percent. At the same time the highest level of that index fell on 2000-2007. (0.19
per cent.-1.38 per cent.), including the maximum values of 0.42 - 1.38 percent - in 2002-2005. In
2008-2009, as noted above, these benefits were applied by a court decision. In 2010, similar to the
period of 2008-2009, used the amount of benefits to GDP was only 0.0004 percent.
68
4.1.5. Industrial Parks
The concept of “industrial parks” is, in principle, quite similar to the SEZ. Industrial parkes are
created to support certain industrial enterprises through tax deferrals, subsidies, lower interest
rates and other economic incentives made available to undertakings registered for participation in
the production of goods and/or research and development projects within territories organised as
special industrial clusters (production cycles). The concept of “industrial parks” is defined by Article
1(3) of the Law of Ukraine “On industrial parks” No. 5018-VI of 21 June 2012 as follows:
“Industrial (production related) park (hereinafter - Industrial Park) is a territory, established by
the initiator of the industrial park and organised in accordance with city planning
documentation and equipped with appropriate infrastructure, within which members of the
industrial park may engage in economic activity related to industrial production, research and
development, or activities in the field of information and telecommunications technology,
according to the terms specified by this law and to the agreement on economic activities within
the relevant industrial park”
According to the established procedure, a special multi-sector commission should assess on the
competitive basis proposed industrial parks projects and recommend to the Government to register
particular projects in a special State Register of Industrial Parks, based on a preliminary review of a
package of standard documents. In particular, the commission has already recommended the
registration of the following industrial parks:

Dolyna (Dolyna town, Ivano-Frankivsk Region);

Riasne-2 (Lviv city);

Slavuta (Slavuta town, Khmelnytskyi Region);

Central (Kremenchuk town, Poltava Region);

Korosten (Korosten town, Zhytomyr Region);

Solomonove (Solomonove village, Zakarpatska Region);

Svema (Shostka town, Sumy Region);

First Ukrainian Industrial Park (Velyka Dymerka settlement, Brovary rayon, Kyiv Region);

BIONIC Hill (Kyiv);

iPark (Kominternivske settlement, Odesa Region);

Kryvbas Industrial Park (Kryvyi Rih town, Dnipropetrovsk Region);

Trostianetskyi Industrial Park (Trostianets town, Sumy Region).
In order to support the development of industrial parks in Ukraine, Article 287 of the Customs Code
of Ukraine has been amended with the following Section 6:
"6. The following imports to the customs territory of Ukraine shall be tax exempt:

machinery, equipment and its components, materials not produced in Ukraine, and provided
they are not subject to excise tax, imported by entities initiating establishment, or by companies
managing industrial parks, for instalment within the industrial parks;

machinery, equipment and its components, not produced in Ukraine, and provided they are not
subject to excise tax, imported by participants in industrial parks for their economic activities
within industrial parks.
Lists of relevant machinery, equipment and its components, as well as materials shall be approved by the
central public authority responsible for the State policy in the field of investment and national projects, in
accordance with the requirements established by the Cabinet of Ministers of Ukraine.
69
Finances made available for relevant undertakings due to such exemptions shall be used for the following
purposes:
1) to equip industrial parks, including introduction of new, energy-efficient technologies;
2) to introduce new technologies related to economic activities within industrial parks;
3) to increase output and reduce costs by types of economic activities envisaged by this Law for
performance within industrial parks;
4) to carry out research and development activities within industrial parks;
5) to repay loans and other borrowings made for the establishment of industrial parks and for conducting
business activities within the industrial parks and to pay interest on such loans and borrowings"
4.1.6. Priority sectors for economic development
The Law of Ukraine "On the stimulation of investments in priority sectors of the national economy to
create new jobs” No. 5205–VI of 6 September 2012 provides that the State must encourage
investments in industries that satisfy public needs in competitive, technologically advanced and
environmentally friendly goods and in quality services, and where productivity, export capacities
and job creation is most desirable (priority sectors).
According to the requirements of this Law, the Cabinet of Ministers has defined a list of such
priority sectors by its Decree No. 843-p of 14 August 2013, as follows:

Agriculture (production and storage of food, including baby food, production of
biofuels with a focus on substitution of imports);

Housing and municipal services (setting up facilities for waste treatment, including
industrial waste from extraction and processing of minerals, production of electricity and
thermal energy), construction, reconstruction and technical re-equipment of the central
heating, water supply and sewage facilities;

Machine building industry (production of new types of computers, electronic and
optical products, machinery and equipment, electrical equipment, motor vehicles, etc.);

Transport infrastructure (construction, reconstruction and technical re-equipment of
the transport infrastructure);

Resort and recreation services, tourism (construction of recreational facilities and
tourist infrastructure);

Processing industry (import-substituting metallurgy).
In order to receive State support, an investment project in these priority sectors should also meet
at least the following criteria:
1) The total estimated cost of the project should not exceed the amount of:
 € 3 million – for large enterprises;
 € 1 million – for medium-sized enterprises;
 € 500,000 – for small enterprises.
2) new jobs, directly related to the production process, must be at least equal to:
 150 jobs - for large enterprises;
 50 jobs - for medium-sized enterprises;
 25 jobs - for small business.
70
3) the average wage at the enterprise implementing the investment project should amount to
at least 2.5 legally established minimum wages as at 1 January of the relevant fiscal year.
Particular requirements for investment projects in the priority sectors and the procedure for
project selection, approval and registration are established by the Cabinet of Ministers of Ukraine35.
Investment projects must also satisfy the following additional requirements:
1) the proposed project should be implemented at a new or a functioning enterprise,
undergoing reconstruction or modernisation in one of the priority sectors, listed by the Cabinet
of Ministers of Ukraine;
2) the project should assign a single structural unit for the implementation of the proposed
investment project and establish relevant economic indicators to be achieved during two years
from the date of State registration of the investment project.
Investment projects in priority sectors are entitled to certain tax benefits. In particular, the income
of the undertaking (unit) implementing an investment project approved by the Cabinet of Ministers
of Ukraine is taxed at the following rates of CIT:



zero rate - up to 1 January 2018;
8%- from 1 January 2018 to 1 January 2023;
16%- from 1 January 2023 onwards.
Investment projects approved by the Cabinet of Ministers of Ukraine are also exempt from import
duties for certain imports:

Until 31 December 2022 equipment and its components imported for investment
projects are exempted from import duty, provided that a tax bill is submitted to the customs
authorities, specifying the amount of tax liability and including VAT, within a period of 60 days
from the date of import to Ukraine;

Until 1 January 2018, equipment and its components imported for investment projects
are exempted from import duty provided that:
a) such goods are not subject to excise duty;
b) the goods have been manufactured not more than three years before the State
registration of the investment project and were not in use; and
c) similar good are not produced and have no analogies in Ukraine.
4.2. Support to the Rescue and Restructuring of Enterprises
Rescue and restructuring measures can be referred to as horizontal support and the Ukrainian
Government, in a few cases, has provided financing for this purpose to State-owned enterprises.
However, the concept of rescue and restructuring support (and according to Ukraine’s classification
of budgetary programmes this includes financial support for the liquidation of State-owned
enterprises) is rather complex. Budget support may be necessary to ensure the public interest, even
in the case of covering liquidation costs, if it is practically impossible to rescue the business or to
35
Decree of the Cabinet of Ministers of Ukraine "On Approval of the Order of Selection, Approval and
Registration of Investment Projects in Priority Sectors of the Economy and Requirements for such Projects" No.
715 of 14 August 2013.
71
restructure it to ensure its long-term viability. Essentially, in the strict meaning of State support,
financing the liquidation of a State owned enterprise could hardly be qualified as "support
measures". Nevertheless, the public expenditures for restructuring and liquidation have been
accounted for in the same budget classification of support programmes for economic activities.
The available budgetary data indicate that the main sectors receiving public funds for rescue,
restructuring and liquidation in Ukraine have been the chemical mining industry and coal and peat
mining enterprises.
Between 2011 and 2013, Ukraine implemented two budget support programmes for the
restructuring and liquidation of enterprises:
1) State Programme "Restructuring and liquidation of enterprises in the chemical mining
industry and necessary environmental measures to support business activities and the
restructuring of enterprises engaged in underground mining of iron ore ";
2) State programme "Restructuring of coal mining and peat producing industries".
These programmes were regulated by the Decree of the Cabinet of Ministers "On approval of the
Procedure for the use of funds allocated by the State budget for restructuring of coal mining and
peat producing industries” No. 236 of 11 March 2011 ". According to this Decree, the main budget
administrator and implementing agency of the programme was the MEDT. The recipients of the
budgetary funds were the following enterprises:


Rozdil State-owned mining and chemicals producing enterprise ‘Sirka’”, and
Novoyavoriv State-owned enterprise "Ekotransenergo" and the State-owned
enterprise "Kryvbasshahtazakryttya."
The ratio of the total amount of financing for restructuring and liquidation measures to total
Government expenditure ranged from 0.28% in 2012 up to 0.50% in 2011 (see Table 13 below).
Budget support for restructuring of the chemical mining industry was targeted at the preservation
of ore deposits, overcoming negative demographic and social consequences and the prevention of
irreversible consequences in the sector. Similar objectives have been declared for the restructuring
of the steel industry.
In particular, the budget restructuring and liquidation programmes were directed towards the
following projects:



Projects under the Cabinet of Ministers Decree No. 236 “Restoration of the environmental
balance and the landscape damaged as a consequence of mining operations by the Yavoriv
State-owned mining and chemical producing enterprise 'Sirka', and also to the completion of the
liquidation of sulphur pits in progress since 2014, and restoration of the environmental balance
and landscape in the area of Rozdil Mining and Chemical State-owned Enterprise 'Sirka'";
Other projects:
Liquidation of the "Pershotravneva" mine and transferring assets to hydro protection
regime special mining, as well as to the Ternovskaya district settlement area (Kryvyi Rig);

Liquidation of the "Saksahan" mine;

Liquidation of the "Gigant" mine.
72
Table 13: Budget Support for Restructuring and Liquidation of Enterprises
(UAH, thousand)
Budget
Programme
1 078 239,81101070
2601090
2601100
Objective
Restructuring in
the coal and
peat mining
industry
(including
subsidies to pay
debts on
electricity
consumed in
previous
periods)
Restructuring of
underground
iron ore mining
enterprises
Restructuring
and liquidation
of enterprises in
the chemical
mining industry,
and
environmental
measures
Total,
Percentage of
total
Government
expenditure
2011
2012
Planned
Actual
Planned
1,669,299.2
1,597,283.3
1,149,298.5
26,000.0
26,000.0
52,104.0
52,900.0
36,548. 6
1,748,199.2
-
2013
Actual
Planned
Actual
1,290,980.1
1,290,980.1
33,379.6
40,800.0
40,800. 0
-
-
-
-
1,659,831.9
1,201,402.5
1.111,619.3
1,331,780.1
1,331,780.1
0.50%
-
0.28%
-
0.33%
Source: Reports of the State Treasury of Ukraine.
The MEDT approved an Action Plan for the restructuring and liquidation of State-owned enterprises
in the chemical mining industry and for the implementation of environmental measures related to
the core industrial activities and the restructuring of enterprises mining iron ore. A copy of the plan
was submitted to the Ministry of Finance.
The procedure for the commissioning of industrial objects after the completion of restructuring
projects was approved by the Decree of the Cabinet of Ministers No. 461 of 13 April 2011 that
focused on budget allocations for projects with a high degree of readiness of industrial objects for
the commissioning.
Measures for restructuring the capital of State-owned enterprises were approved by the Decree of
the Cabinet of Ministers of Ukraine No. 1764 of 27 December 2001.
The Government programme "Restructuring of the coal and peat mining industry" was regulated by
the Decree of the Cabinet of Ministers "On the Approval of the procedure for use of Funds Allocated
in the State Budget for the Restructuring and Liquidation of Enterprises in the Chemical Mining
Industry and the Implementation of Urgent Environmental Measures within the zone of their
business activity and the Restructuring of Enterprises Mining Underground Iron Ore", No. 160 of 29
February 2012. Under this Decree, the Ministry of Energy and Coal was defined as the State
manager for the projects and for financing the restructuring and liquidation measures for eligible
undertakings under the budget support programme. The recipients of the budget support are
State-owned coal mining enterprises undergoing liquidation procedures, as well as firms contracted
73
to perform necessary measures for the liquidation of coal mining, coal processing and peat
producing enterprises. Most of those measures were designed to ensure the hydro-ecological
safety of the relevant territories where such industrial activities took place and of neighbouring
areas - in particular, the territories where the State-owned enterprise “Ukrshahthidrozahyst”
operates.
Budget support was intended to improve the efficiency of the coal mining industry on the whole, by
financing necessary preparations for the legal and physical liquidation of inefficient and nonprofitable coal and peat mining enterprises, in particular, where these concerned the safety of
drainage facilities.
More specifically, the budget support programme has been targeted at the following:
(1)
Pre- liquidation steps:

transferring or writing-off inventories in coal and other minerals, closing mining galleries,
decommissioning installed machinery and equipment not used during physical liquidation
of the coal mines;

reducing the number of employees;

paying wages and salaries, compensating social benefits and health damages of workers;

paying debts of the enterprises for consumed electricity, for supplies of domestic coal, for
the registration of certificates for use of land;

implementing environmental protection measures required to prevent dangerous impact
of coal mining by enterprises under liquidation, of their capacities on the environment and
human health;

preparing legal documents for liquidation and performing required State examinations and
expert assessments.
(2) Physical liquidation of coal mines, coal and peat producing enterprises, including environmental
measures, ensuring hydro-ecological safety of the existing enterprises and surrounding areas.
The goal is to overcome the negative social and economic consequences of the liquidation, in
accordance with the established and approved liquidation procedures;
(3) The maintenance of drainage facilities, construction and reconstruction, which is envisaged in
the liquidation plan, provided that the continued functioning is not included in the costs of such
projects.
4.3. Support to Small and Medium-Sized Enterprises (SMEs)
According to Article 55(2) of the Commercial Code of Ukraine, “small business” is defined as an
undertaking with an average number of employees of up to 50 persons and an annual turnover of
up to €10 million, as well as sole entrepreneurs. The Commercial Code of Ukraine does not
specifically provide a definition of “medium-sized enterprise”, although logically it can be assumed
that a medium-sized enterprise is an undertaking that is neither a small business entity, nor a large
enterprise that should have at least 250 employees and an annual turnover above €50 million.
Measures for SME development are typically defined as a priority within regional and local
development programmes approved by the relevant local self–governance bodies. However, not
only investment project selection, but also particular forms and amounts of support to SMEs must
74
follow a multitude of legislative and administrative procedures established at the level of the
national Government36.
According to the Law of Ukraine "On Development and State Support of Small and Medium-sized
Business in Ukraine"37, SME support measures may be proposed by local councils, local and regional
administrations, other public institutions, business associations, individual SMEs and sole
entrepreneurs operating in the relevant administrative territory. The exact scope of public support
to SMEs in Ukraine cannot, however, be established with a sufficient degree of accuracy. Although
texts of regional development programmes are generally available on the websites of Regional
State administrations and councils, the experts have found that only in nine regions have the actual
texts of the relevant body’s resolutions been published on the websites. Information about
financial resources available for SMEs at the regional level is not available. In addition, reports on
the implementation of particular sections of regional development programmes are almost never
published. Therefore, the scope of financing and the effectiveness of State support for SMEs is
difficult to estimate on the basis of publicly available information.
In general, there are three main sources of financing for SME development measures: public
budgets, certain private funds and international assistance programmes.
The lack of information is typical not only for information sources managed by regional or local
authorities but also for official reports submitted to the central authorities concerning the
execution of regional budget programmes. For example, websites of the regional authorities
typically publish reports on the implementation of regional budgets but these do not contain any
detailed information concerning the distribution of the relevant expenditures among particular
local communities. Information on the execution of local budgets is often presented in the format
of financial aggregates. This trend might have emerged due to the ambiguity of Article 28 of the
Budget Code of Ukraine regulating access to information on public budgets.
Available statistics show that the scope of budget support for SMEs and for private sector
development in general is rather limited. Thus, the total amount of budget expenditures for this
purpose was 14.5 million UAH in 2012 and from 2009 to 2011 these budget expenditures were only
a small fraction of the amount spent in 2012. Moreover, there seems to be a continuous failure to
achieve the target expenditures for this category of public support. In fact, local budgets spent on
SMEs and private sector development in the vast majority of regions was less than 350,000 UAH,
and zero expenditure was registered in the Cherkassy region and only 2,000 UAH was spent in the
Khmelnitsky region in 2012.
Table 14 shows the amounts of financial support to SMEs from local budgets under SME
development programmes and existence of significant differences across regions.
36
These programmes shall take into account the requirements of the Laws of Ukraine "On the National
Programme for the Promotion of Small Business in Ukraine" No. 2157 of 21 December 2000, "On the
Principles of State Regulatory Policy" No. 1160 of 11 September 2003, "On State Registration of Legal Persons
and Sole Entrepreneurs" No. 755 of 15 May 2003 and some other related legislative acts, in particular, "On
amendments to some legislative acts of Ukraine concerning business regulation" No. 523-VI of 18 September
2008, "On the promotion of the development of regions”, "On the approval of the National Programme of
Development of Small Towns", "On tourism". Also, relevant are Decrees of the President of Ukraine “On
measures to support and further develop entrepreneurship" No. 906/2000 of 15 July 2000, "On improvement
of the State Regulation of Employment and Labour Market in Ukraine" and the Decree of the Cabinet of
Ministers of Ukraine "On the Approval of the State Programme for the Development of Ukrainian Villages
during the period until 2015".
37
Law of Ukraine No. 4618-VI of 22 March 2012
75
Table 14: Local budget support to SMEs in the period 2008 to 2012 (UAH thousands)
Region
Autonomous Republic of
Crimea
Vinnitsa
Year
2008
2009
2010
2011
2012
1,277.2
908.7
579.69
931.13
696.29
700.97
457.07
27.92
141.2
334.76
Volyn
937.11
903.01
723.97
278.21
149.45
Dnepropetrovsk
1,633.33
348.18
1,368.99
710.28
536.47
Donetsk
1,356.29
856.38
1,688.14
2,252.66
2,369.03
Zhitomir
259.81
54.77
429.52
387.96
332.43
Transcarpathian
274.68
743.41
505.8
484.82
552.63
Zaporozhe
594.93
295.38
665.31
510.76
283.12
Ivano-Frankovsk
389.12
209.65
205.76
268.84
291.06
Kiev
273.83
43.14
95.06
101.41
280.09
Kirovograd
608.01
489.51
356.57
1,089.48
232.81
Lugansk
439.24
93.25
1,050.45
169.52
1,244.82
Lvov
946.32
524.15
555.3
356.47
492.07
Mykolaiv
575.7
491.45
479.74
275.53
341.91
Odessa
1,423.01
790.82
602.94
658.14
611.7
Poltava
1,729.77
834.39
514.06
426.74
372.58
Rivne
603.4
279.62
196.38
275.63
229.48
Sumy
787.45
928.51
257.94
254.06
317.42
Ternopil
574.7
359.93
171.43
162.57
124.03
Kharkov
894.97
653.99
524.22
483.38
1,055.28
Kherson
366.75
319.85
207.78
277.63
288.42
Khmelnitsky
26.73
45.26
32.2
45.87
2
Cherkassy
719.7
1,035.2
500.7
11.5
0
Chernivtsi
487.71
404.16
549.2
469.37
451.21
Chernihiv
484.12
444.33
264.9
532.5
816.61
City of Kiev
City of Sevastopol
24,806.53
9,366.47
12,424.26
50
9,226
2,000
50
4.4. Support for Research and Development
4.4.1. Techno-parks
The objective of the establishment of techno-parks (TPs) and of priority development territories
(PDTs) was to encourage investment and promote research and development (R&D). Since 1999 a
number of legislative acts and Cabinet of Ministers’ decrees have been adopted to address the
issue of the establishment of TPs and investment activities in PDTs38. Additionally, certain
38
Law of Ukraine “On amendments to the Law of Ukraine ‘On Special Regime for Innovation Activity of
Technology Parks’ and some other Laws of Ukraine” No. 3333-IV of 12 January 2006; the Law of Ukraine “On
Priority Directions for Scientific and Technological Development” No. 2632- III of 11 July 2001 (with changes
and amendments); the Law of Ukraine “On Priorities for Innovation Activity in Ukraine” No. 433-IV of 16
January 2003 (with changes and amendments); the Decree of the Cabinet of Ministers of Ukraine “Approving
76
incentives39 were offered in the form of preferential import duties and credit terms. However, the
special treatment of TPs through subsidies, exemptions from income tax and VAT deferrals was
later abolished40.
In order to create incentives for regional and industrial investments and to boost R&D activities, the
Government introduced the possibility of setting up technology parks and free economic zones. The
Ukraine’s Constitution established the legal basis for the creation of free economic zones that could
have a special legal regime different from the rest of the territory of Ukraine (Article 92 (2) point
8)).
Import duties on new materials, equipment, and components related to TP projects were
transferred to a special account and were to be used exclusively for the purpose of R&D activities
by the TPs.
Financial support measures for TP projects were foreseen in the State budget laws annually since
2006 in the following forms:

loans fully or partially provided at zero interest and adjustments to the inflation rate;

full or partial compensation of the interest paid on loans to commercial banks and other
financial institutions by entities implementing TP projects.
The Law of Ukraine "On Amendments to the Law of Ukraine 'On Special Technological Innovation
Parks' and some other Laws of Ukraine" (clauses 4 and 5 of Article 7 and Article 8) established a
preferential taxation regime for techno parks and joint ventures implementing techno-park
projects. The amounts of taxes on revenues from such projects were not paid to the budget but
allocated to special accounts and used only for the purposes of R&D, scientific and technical
activities, as well as for the development of science and technology and for investment in research
and experimental facilities. The budget losses (Budgeting Code 11020150) from CIT foregone due to
this benefit for techno-parks amounted to 1.03 million UAH in 2008; 1.18 million UAH in 2009; and
0.32 million UAHin 2010.
For the years of 2011 and 2012, there was no budget support envisaged under these particular
lines. The official report of Ukraine to the WTO submitted on 2 July 2013 States that State financial
support (including budget loans) is no longer applicable to techno park projects and such financing
has not been provided since 2010. The same communication also mentions, but does not clarify,
that the preferential taxation regime for techno parks was established for a period of 15 years but
the effects of those benefits on trade, if any, cannot be estimated.
the Procedure for the Consideration and Approval of the Priority Directions and Activity of Technology Parks,
the Procedure for the Consideration, Examination and Registration of Technology Parks’ Projects” No. 2311 of
17 December 1999 (with changes and amendments). Also the Decree of the Cabinet of Ministers of Ukraine
“Approving the Procedure for the Accumulation of corporate income tax amounts on special account of
technology parks and the use and control of such amounts” No. 118 of 2 February 2012; Decree of the
Cabinet of Ministers of Ukraine “Approving the Procedure of Control and Monitoring of Technology Parks
Projects Implementation” No. 517 of 21 March 2007; and Decree of the Cabinet of Ministers of Ukraine
“Approving the Procedure for State Registration of Technology Parks” No. 1657 of 29 November 2006.
39
Law of Ukraine “On State Budget of Ukraine for 2011”, No. 2257-IV of 23 December 2010 (with changes
and amendments). Also the Law of Ukraine “On State Budget of Ukraine for 2012” No. 4282-IV of 22
December 2011 (with changes and amendments) and the Law of Ukraine “On Customs Tariff of Ukraine”, as
amended by the Law of Ukraine No. 2829-VI of 21 December 2010.
40
Law of Ukraine “On amendments to Certain Legal Legislative Acts of Ukraine in Connection with the
Adoption of the Tax Code of Ukraine” No. 2756-VI of 2 December 2010.
77
4.5. Support for the Training of Employees
4.5.1. Legal Framework and Statistics
The right of citizens to vocational training is guaranteed by the Constitution of Ukraine (Article 43),
and is realized on the basis of the Labour Code of Ukraine (Articles 201-220), the laws of Ukraine
"On the professional development of employees", "On Employment", and "On Compulsory
Insurance against Unemployment".
Article 34 of the law "On Employment" defines training as the process of:
“acquiring and improving professional knowledge and skills of a person in accordance with his
or her mission and capabilities, providing an adequate level of professional qualification and
competitiveness in the labour market”.
The Government of Ukraine approved several implementing regulations concerning vocational
training:

“Procedure for training, retraining and professional development of registered
unemployed", approved by the Order of the Ministry of Social Policy of Ukraine and the
Ministry of Education and Science of Ukraine No. 318/655 of 31 May 2013;

“Procedure of issuing vouchers to support the competitiveness of individuals in the labour
market", approved by the Cabinet of Ministers of Ukraine No. 207 of 20 March 2013;

“Procedure for the validation of non-formal vocational training for persons involved in
working trades", approved by the Cabinet of Ministers of Ukraine No. 340 of 15 May 2013;

“Procedure for the conclusion of internship agreements with students and apprentices of
higher educational and higher vocational training establishments by enterprises and
institutions and organisations", approved by the Cabinet of Ministers No. 20 of 16 January
2013.
Collective agreements between employers and trade unions typically include the employers’
obligation to train and retrain workers for particular purposes, at least once in every five years, and
to provide special funds for those purposes. In cases where an employee is obtaining a new
profession at the initiative of the employer through a full time training or retraining course, the
employer must preserve the job to pay an average wage to such an employee.
Vocational training (retraining) is offered for the following purposes:

To acquire skills needed to perform a specific job;

To acquire additional knowledge and skills needed to perform a new profession or new skills
within the existing professional capacities;

To update knowledge and skills in order to enhance the competitiveness of the available
professions, as well as to master new equipment, technology and other aspects within a
particular professional capacity;

To consolidate theoretical knowledge and skills on practice, to acquire organisational qualities
necessary to perform professional duties.
Training of employees can be provided on a formal and an informal basis. Formal training can be
performed directly by the employer or organised through contracts with educational institutions
and specialised training organisations. After the completion of formal training, workers receive
standard certificates. Informal training refers to unregulated forms of vocational training. The State
78
job centres established a special procedure for the recognition of informal training results by a
standard document on accomplished assignments or improved working skills.
The Ministry of Education and Science, on the basis of the Law of Ukraine "On Licensing of Certain
Economic Activities" No. 1775-III of 1 June 2000, and in accordance with the Decree of the Cabinet
of Ministers of Ukraine “On Licensing of Educational Services" No. 1380 of 29 August 2003, issues
licences to providers of training of personnel in the workplace.
Employers can train and retrain their personnel at their own expense and no compensation of any
direct or indirect costs borne by the employer for training of employees is envisaged in the
Ukrainian legislation (Law of Ukraine "On the professional development of employees” No. 5067-VI
of 5 July 2012).
Professional training, retraining and advanced training of the unemployed, officially registered at
the job centres, is carried out under Article 35 of the Law of Ukraine "On Employment" and
financed through the State Social Insurance Fund of Ukraine.
At the same time, the Tax Code of Ukraine provides that amounts paid by employers to domestic
universities and vocational training schools are not included into the total monthly (annual) taxable
income (Article 169.4 of the Tax Code), regardless of whether relevant individuals are currently
employed by the taxpayer or not; but provided that there is a written contract with that person
that he/she will work for that employer for at least three years after completion of the training
course at a higher vocational training establishment.
The annual average number of employees who improved their professional qualifications increased
from 8% in 2002 to 9.9% in 2013. More than 50% of the trained personnel were trained through
contracts with special educational establishments, rather than directly by employers (Figures 5 and
6).
Figure 5: Vocational Training for Employees (Percentage of the Total Workforce) 41
41
Official website of the State Statistics Service of Ukraine [e-Resource]. — Mode of access:
http://www.ukrstat.gov.ua/. —Last access: 2014. — Screenshot.
79
Figure 6: Types of Education and Training
Vocational training institutions almost entirely focus on the primary vocational training of young
persons (under 30 years of age and representing 72.3% of trainees at the end of 2013); of whom
just over 5% involved temporarily employed or unemployed persons. Among the workers who
underwent training in vocational training establishments, 50.7% received primary training, 44%
involved training upgrading and only 5.4% received full course retraining.
It may be concluded that employers in Ukraine do not receive incentives to invest into the training
of their employees. Accordingly, employers show little interest in closer cooperation with
educational organisations providing professional training and in transferring modern equipment to
those training establishments. It is more attractive for employers to train their workforce directly
on the job; using their own equipment and the available skills of experienced workers.
4.5.2. Employment of Young Persons
The Ukrainian Government intends to support young persons who graduate from high schools and
receive vocational training for their first employment. The legal basis for such support was
established initially by provisions supporting the employment of young persons were introduced
already in the Law of Ukraine "On the promotion of social advancement and development of young
people" No. 2998-XII of 5 February 1993.This was further elaborared by the Law of Ukraine "On
ensuring first jobs for young people graduating from higher educational or vocational professional
training institutions through subsidies to the employers" No. 2150-IV of 4 November 2004. In 2012,
however, this law was repealed, due to the adoption of the relevant provisions in the Law of
Ukraine "On Employment” No. 5067-VI.
The Law “On Employment” of 2012 provided additional guarantees for young people who have
graduated from higher education establishments (Article 14) and re-defined the scope of benefits
and penalties for employers with respect to the employment of youth. In particular, the following
were established:

Quotas for the employment of disabled persons (including young professionals) of up to 5% of
the total number of employees (including those who are already working in the company)
(Article 14);

Compensation for the actual costs of obligatory monthly per capita contributions to the State
Social Insurance Fund arising from the employment of graduates of vocational schools and
Universities for a period of not less than two years (Article 26);
80

Assistance to cover housing expenses (a maximum of ten minimum wages) of certain young
professionals (the list of professions is approved by the Cabinet of Ministers) employed in
villages and towns under an employment contract of at least three years (Article 28);

Fines for the refusal to employ young professionals in line with the annual quota, in the amount
of two minimum wages, as defined at the time of detection of such an infringement.
The data for the period from 2013 to September 2014 on new jobs and compensations paid to
employers for hiring registered unemployed at the level of the guaranteed quota as well as
compensations to unemployed persons starting a new business are presented in the Tables 15 – 18
below.
Table 15: Employment of disadvantaged persons and new jobs created in priority sectors
(2013)42
Total
Total
AR of Crimea
Vinnytsia Region
Volynska Region
Dnipropetrovsk Region
Donetsk Region
Zhytomyr Region
Zakarpatska Region
Zaporizhzhia Region
Ivano-Frankivsk Region
Kyiv Region
Kirovohrad Region
Luhansk Region
Lviv Region
Mykolaiv Region
Odesa Region
Poltava Region
Rivne Region
Sumy Region
Ternopil Region
Kharkiv Region
Kherson Region
Khmelnytskyi Region
Cherkasy Region
Chernivtsi Region
Chernihiv Region
Kyiv city
Sevastopol city
42
9,577
434
249
178
385
1,049
212
264
517
627
251
175
406
468
177
206
290
304
256
366
836
445
483
324
174
310
177
14
Disadvantaged persons
employed
4,348
229
81
90
170
555
87
108
253
253
71
41
189
230
81
117
109
114
102
176
358
234
257
162
62
150
57
12
New jobs in priority sectors
http://www.dcz.gov.ua/control/uk/statdatacatalog/list/category?cat_id=30543.
81
5,229
205
168
88
215
494
125
156
264
374
180
134
217
238
96
89
181
190
154
190
478
211
226
162
112
160
120
2
Table 16: Employment of persons entitled to additional guarantees (2013)43
Region
Ukraine
AR of Crimea
Vinnytsia Region
Volynska Region
Dnipropetrovsk
Region
Donetsk Region
Zhytomyr Region
Zakarpatska Region
Zaporizhzhia Region
Ivano-Frankivsk
Region
Kyiv Region
Kirovohrad Region
Luhansk Region
Lviv Region
Mykolaiv Region
Odessa Region
Poltava Region
Rivne Region
Sumy Region
Ternopil Region
Kharkiv Region
Kherson Region
Khmelnytskyi Region
Cherkasy Region
Chernivtsi Region
Chernihiv Region
Kyiv city
Sevastopol city
Total employed
154,463
6,599
8,236
3,927
Young graduates from higher or vocational
educational establishments and those who failed to
obtain an academic degree
11,499
308
503
327
9,650
9,166
5,116
3,501
7,936
545
719
616
297
418
5,225
3,767
5,006
6,776
7,977
5,398
6,497
6,464
4,985
4,901
5,074
10,053
4,761
6,319
7,135
2,593
4,456
2,521
424
827
223
199
518
1,043
315
252
399
682
224
663
679
246
684
297
176
250
70
19
Table 17: Unemployed entitled to compensations for starting up a new business (January
2013 through September 2014)
Category
One-off compensations received (total number)
Including :
women
young people (younger that 35 years of age)
people with disabilities
persons entitled to additional employment guarantees
residents in rural areas
43
2013
11,337
2014
13,467
4,939
5,915
541
2,340
2,402
5,850
6,941
731
2,889
2,845
http://www.dcz.gov.ua/control/uk/statdatacatalog/list/category?cat_id=30543.
82
Table 18: New jobs created during the period from January to September 2014 by
employers compensated in the amount of the consolidated social security tax
Total
Vinnytsia Region
Volynska Region
Dnipropetrovsk
Region
Donetsk Region
Zhytomyr Region
Zakarpatska
Region
Zaporizhzhia
Region
Ivano-Frankivsk
Region
Kyiv Region
Kirovohrad Region
Luhansk Region
Lvov Region
Mykolaiv Region
Odesa Region
Poltava Region
Rivne Region
Sumy Region
Ternopil Region
Kharkiv Region
Kherson Region
Khmelnytskyi
Region
Cherkasy Region
Chernivtsi Region
Chernihiv Region
Kyiv city
New jobs by employers entitled to a compensation in the amount of the
consolidated social security tax
Total
disadvantaged unemployed
unemployed obtaining
new jobs at small
enterprises in priority
sectors
11,049
4,228
6,821
493
140
353
289
103
186
646
269
377
804
344
322
321
140
130
483
204
192
550
239
311
769
229
540
330
250
355
765
330
303
384
516
291
331
830
490
425
98
92
136
316
155
150
141
174
90
131
341
229
167
232
158
219
449
175
153
243
342
201
200
489
261
258
400
205
364
263
145
63
163
66
255
142
201
197
4.5.3. Employment of persons with disabilities
The Law of Ukraine "On the basic provisions for the Social Protection of Disabled Persons in Ukraine”
No. 875-XII of 21 March 1991 guarantees disabled citizens equal opportunities to participate in the
economic, political and social life of the country and provides for a legal environment for people
with disabilities to effectively implement all their rights and freedoms and to live a life in
accordance with their individual abilities and interests.
The Resolution of the Cabinet of Ministers "On the implementation of Articles 19 and 20 of the Law
of Ukraine ’On the basic provisions for the social protection of disabled people in Ukraine’" No. 70 of
31 January 2007 establishes the following:
83

The procedure for the registration of undertakings, institutions, organisations and individual
entrepreneurs that hire labour of people with disadvantages;

The procedure for reporting on the employment of disabled people and relevant information
for the organisation of jobs for people with disabilities;

The procedure for the admission of disabled persons to jobs by business associations that
include undertakings employing disabled persons;

The procedure for the payment of administrative sanctions by employers (enterprises,
institutions, organisations and individual entrepreneurs) for infringement of the obligation to
maintain the quota for the employment of persons with disabilities;

The format of orders concerning administrative sanctions for non-compliance with regulations
on the employment of persons with disabilities and on the inspection of employers
(enterprises, institutions, organisations and individual entrepreneurs).
The Law of Ukraine “On amendments to certain legislative acts of Ukraine concerning the protection
of persons with disabilities" No. 1519-VII of 18 June 2014 amended Article 161 of the Criminal Code
of Ukraine to provide that all direct or indirect restrictions of civil rights on the grounds of physical
disability are qualified as criminal offences punishable by a fine in the amount from two hundred up
to five hundred minimum wages or by imprisonment for up to five years. Similar violations
committed by a natural person are punishable with a fine of five hundred to one thousand
minimum wages or by imprisonment for a term of two to five years, when they disqualify disabled
persons from holding certain positions or engaging in similar activities for up to three years.
Article 188-1 of the Code of Ukraine on Administrative Offences No. 8073-X of 7 December 1984
provides for penalties of from ten to twenty minimum wages for employers that use the quotas for
the employment of disabled persons and fail to report to the Social Protection of Disabled Persons
Fund in accordance with established procedures.
The Decree of the Cabinet of Ministers "On the implementation of Article 18-1 of the ‘Law of
Ukraine concerning social protection of disabled persons in Ukraine’" No. 1836 of 27 December
2006 establishes a special procedure for granting subsidies from the Social Protection of Disabled
Persons Fund to employers that create jobs for officially registered unemployed persons with
disabilities. In particular, Article 26 of this Law provides that employers of disabled persons shall be
reimbursed for the maintenance of a new job during a period of at least two years, in the amount
of the compulsory monthly contributions actually paid to the public social insurance fund.
Ukraine has joined several international agreements, recognising the right of persons with
disabilities to work, in particular: the Declaration of the Rights of Persons with Disabilities
(December 1975), the Convention on Vocational Rehabilitation and Employment of Disabled
Persons (June 1983) and the Convention on the Rights of Persons with Disabilities (December
2006).
In the first half of 2014, the territorial offices of the State Labour Safety Inspection examined
compliance of 6,000 employers (undertakings, public sector institutions and sole entrepreneurs)
with the requirements on the employment of disabled persons. Inspections revealed 2,900
infringements of the Law of Ukraine "On the basics of social protection of disabled people in
Ukraine". 700 employers employed eight or more persons not registered in the Office of Social
Protection of Disabled Persons. 1,100 employers did not meet the requirements on the
employment quotas for disabled persons.
As to the amount of budget revenue foregone due to tax benefits related to employment of
disabled persons, one has to take into consideration the whole variety of taxes (CIT, land fees, VAT,
and excise taxes). Within each tax category there are provisions for tax benefits to employers of
disabled persons and detailed conditions for availing of such tax benefits. The total system of such
84
tax benefits is rather complex and Annex 3 provides an overview of the scope of these benefits in
the period 2008 to 2013. Thus, these benefits and budget revenues foregone arising from these
benefits rose steadily from 236 million UAH in 2009 to 1,369 million UAH in 2013. The share of
these benefits in total budgetary revenues foregone due to tax benefits was between 1 and 4% in
this period or between 0.02% nd 0.09% of GDP.
4.6. Support for Environmental Protection
The principles of national environmental policy and implementing rules are provided in the Law of
Ukraine "On Fundamentals (Strategy) of the State Environmental Policy of Ukraine until 2020” No.
2818-VI of 21 December 2010. This Law envisages direct budget financing for the creation of
environmental monitoring systems and the implementation of environmental standards and State
support and adequate compensation for the losses of undertakings that implement environmental
projects or improve environmental conditions.
In particular, an important principle fixed in the national environmental policy is that State support
should stimulate undertakings to modernise their production processes in order to reduce negative
impacts on the environment.
Another objective of the State environmental policy relates to the development and
implementation of a support programme for environmental projects, implemented by nongovernmental organisations (NGOs) during the period from 2012 and achieving their results by
2020. The plan is to increase the volume of State support to these projects at least up to the level
of 2 per cent of the total expenditure of the State Fund for Environmental Protection of Ukraine by
2015 and to reach at least 3 per cent of total expenditures in 2020.
In order to promote economic incentives for the rational use of natural resources and
environmental protection, the Law envisages the following:

Improvement of the regulatory framework for environmental taxation in order to decrease
pollution, including the stages of production, storage, transportation and utilisation of
environmentally hazardous products that affect the environment and public health;

Increasing environmental pollution levies, increasing the dumping fee per unit of pollutant
mass up to the European level, taking into account the toxicity of the pollutant;

Reform of the system of environmental protection with a view to mobilising additional
financial resources;

Improvement of the regulatory framework for the use of natural resources on a commercial
basis;

Revision of the allowances and privileges for the special use of natural resources and for
environmental pollution with a view to minimising these benefits;

Increasing the tax burden and environmental charges for undertakings involved in activities
and forms of consumption that are environmentally harmful to the public; in particular,
with respect to products that have adverse effect on human health;

Encouraging the development of ecological businesses, including support for the
production of goods, the performance of works and the provision of services related to
environmental protection.
In addition, the Government has developed and implemented a number of special programmes to
address environmental issues and to improve the quality and safety of the environment. Thus,
85
between 2011 and 2013 three national programmes were adopted by the laws and 11 programmes
approved by Decrees of the Cabinet of Ministers of Ukraine. The programmes adopted by the laws
are the following:
(1) The State Programme for the establishment of the National Ecological Network in Ukraine
for the period from 2000 to 2015;
2) The State Programme “Potable Water of Ukraine” for the period from 2011 to 2020 (with an
estimated budget of 9,471.7 million UAH, including State budget financing in the amount of
3,004.3 million UAH and financing from other sources in the amount of 6,467.4 million
UAH);
3) The National Programme on Water Resources Management and for the Environmental
Rehabilitation of the Dnieper River for the period until 2021 (with an estimated budget of
46,478.46 million UAH, including State budget financing in the amount of 21,029.03 million
UAH, funds from local budgets amounting to 9,294.23 million UAH and financing from
other sources in the amount of 16,155.2 million UAH. In particular, the programme is
focused on the development of land reclamation and the ecological improvement of
irrigated and drained land with a budget allocated in the amount of 30,090.490 million
UAH).
Among the measures approved by decisions of the Cabinet of Ministers of Ukraine, the
programmes with the largest indicative budgets are the following:

The programme "Forests of Ukraine" designed for the period from 2010 to 2015: The
approximate budget required for its implementation was 22 billion UAH, including 7.9 billion
UAH financed though the general fund of the State budget;

The programme "Reproductive Health of the Nation" designed for the period until 2015: The
programme was to be financed through the State budget in the amount of approximately 494
million UAH and through local budgets in the amount of 295 million UAH with funds of 10
million UAH expected to come from other sources.
86
CHAPTER 5: SECTORAL SUPPORT
5.1. Support to the Energy Sector
5.1.1. Structure and regulation of the Energy Sector
The Ukrainian energy sector plays a significant role in economic and social development and in the
national security of Ukraine. It includes coal mining, the production and transmission of electricity,
oil and gas extraction, transportation and supply.
Energy sector enterprises employ about one third of the industrial labour force (see Table 1 in
Annex 5) although the number of enterprises in the sector does not exceed 10% of all industrial
entities. Accordingly, energy enterprises are predominantly large industrial entities. Most
undertakings working in the sector are State-owned enterpises supervised by the Ministry of
Energy and Coal. According to the Ministry’s Order No. 536 of 30 July 2014 "On the approval of the
list of State-owned enterprises, public institutions, organisations and associations in the sphere of
management by the Ministy for Energy and Coal, as well as companies in which the Ministry is
governing State corporate rights" (amended by the Ministry’s Order No. 694 of 6 October 2014), on
1 October 2014 there were:
- 313 State-owned enterprises, institutions, organisations and associations: including 38
entities in the electricity sector; 29 entities in the nuclear power segment (of which 27 are
members of a single concern); the oil, gas and petrochemical industry comprised 31
entities and the coal mining industry 215 enterprises and institutions. The Ministry of
Energy and Coal has adopted decisions to liquidate 108 enterprises in this sector; to intiate
bankruptcy procedures against 31 entities, to reorganise and restructure 35 enterprises,
and 2 enterprises will be closed under relevant court decisions;
- 136 joint stock companies where the Ministry represents the State as the corporate
manager. Of these, 5 belong to the electricity sector, 2 operate in the oil and gas industry
and the remaining 129 are State owned entities in the coal industry. The Ministry has
adopted decisions about the liquidation of 54 companies, intends to proceed with the
bankruptcy of 21 companies and the reorganisation of 4 companies; 1 joint stock company
should be closed under a court decision;
- 3 joint stock companies are managed by the Ministry of Energy and Coal Industry according
to special resolutions to authorise it as a representative to manage State corporate rights
in 2 entities belonging to the nuclear energy sector and one company in the coal mining
sector.
The strategic priorities for the sector were defined in the “Energy Strategy of Ukraine for the Period
to 2030” approved by Resolution No. 1071 of the Cabinet of Ministers of 24 July 2013. In particular,
this document establishes the following objectives:
- to create conditions for reliable and quality supplies to meet the demand for energy
products at the minimum total cost and in an economically justified way;
- to improve the energy security of the nation;
- to improve the efficiency of consumption and the use of energy products;
87
- to decrease the technological impact on the environment and ensure civil protection and
the safety of the energy sector.
One of the most urgent strategic objectives for the national economy is to reduce the consumption
of natural gas by industrial users and the population. Accordingly, the Cabinet of Ministers of
Ukraine adopted a Decree "On incentives for the replacement of natural gas for the production of
heating energy" No. 293 of 9 July 2014. Between January and December 2014 companies in the
energy sectors, under the management of Minenergouglya, mobilised capital investments of 13.5
billion USD – which was 16.1% less than the corresponding figure for 2013.
Ukraine’s energy balance for 2013 shows that the share of primary energy resources amounted to
115.9 million tonness of oil equivalent; 5.4% less than this indicator for 2012. The structure of
primary energy resources used by Ukaine in 2013 had changed: the share of natural gas decreased
to 34.1%, nuclear energy to 18.9%, oil to 8.5%, while the share of coal grew to the level of 35.8%.
Renewable energy sources (hydro, geothermal, solar, wind, biofuels) increased to the level of 2.7%.
In 2013, net imports (the difference between imports and exports) of primary energy resources
accounted for 27.2% of the total supply of energy, which was 4.2% less than in 2012. The share of
natural gas in the structure of imported energy resources in 2013 was the largest and remained at
the level of the previous year: almost 57%. The volumes of imported coal decreased by 9% and the
volume of electricity exports also fell by 14%.
The annual sales of electricity, coal, oil and fuels (by type of economic activities) in the 2010-2013
period are presented in Figure 7 below.
Fig. 7
In 2013 a reduction in sales was registered in the electricity and heat segments, for gas distribution,
and for gaseous fuels, hot water and hot air supplied through local distribution pipelines (see Fig.
8).
88
Fig 8.
In 2014 State-owned enterprises and companies managed by the Ministry of Energy and Coal
Industry invested more that 13.5 billion UAH in their production capacities, which was 16% less
than investments made in this sector in 2013.
Energy sector development has been in the focus of numerous political decisions, legislative and
regulatory acts that envisaged State support to the sector through subsidies, tax benefits, State
guarantees, the writing off debts and compensation for services or for interest rates under
commercial loans by energy companies etc.
For example, the Cabinet of Ministers of Ukraine adopted a Decree “On the Approval of the State
Economic Programme for Energy Efficiency and the Development of Energy Production from
Renewable Energy Sources and Alternative Fuels during 2010-2015” No. 243 of 1 March 2010. This
envisaged that conditions must be created to bring the energy consumption level in Ukraine closer
to energy consumption in economically developed countries. This governmental programme aimed
to reduce energy consumption by 20% by 2015 (the base is taken as consumption in 2008), i.e. by
3.3% annually. The ultimate goal was to increase energy efficiency and eventually improve the
competitiveness of the national economy, to eliminate cross-subsidisation through pricing and
tariffs and to improve the structure of national energy resources to a point where the share of
renewable energy and alternative fuels would amount to at least 10% of overall energy output by
2015. The programme also focussed on decreasing the country’s dependence on imports of energy
resources, in particular, fossils and natural gas. It was also foreseen that traditional fossil fuels
would be gradually replaced by alternative fules. In particular, the programme envisaged the
following objectives:

to increase supplies of thermal energy to the population and to reduce consumption of gas
for the production of heating for residential premises by 60% and to public buildings by
35%;

to decrease budget expenditures on the procurement of energy for public institutions by
50%;

to ensure a 25% reduction in the consumption of imported natural gas;

to decrease consumption of other natural resources (water, fossil fuels, atmospheric air,
etc.) by 15-20% through reduced consumption of fuels and a decrease of harmful emissions
by 15-20%.
89
The outcome of the Energy Efficiency Programme has been the following:

energy consumption in the production of goods and services has decreased by about 10%
(comparison base was 2008);

the structure of the country's energy balance has improved: the share of renewable
sources and alternative fuels has reached 5% of total energy output;

the intensity of gas transportation, storage and distribution has increased by 10% in terms
of the reliability and efficiency of natural gas transit through cross-country gas pipelines;

improved diversification of energy supplies from external sources.
There are also regional and local programmes for the development of the energy efficiency. For
example, the “Lviv Regional Programme for Energy Saving in Housing Systems for the period of
2010-2015” has a total budget of 93.75 million UAH. It is aimed at:
 the replacement and reconstruction of gas boilers efficiency which is lower than 80%;
 the replacement of burners;
 installation of co-generation facilities;
 the replacement of central heating systems with individual systems using modular heat
exchange units;
 the replacement of heating systems using pre-insulated pipes;
 installation of modern burners;
 introduction of modern automated control heating;
 introduction of electrical hold-over systems (heat accumulators);
 implementation of alternative, non-conventional, renewable energy sources in heating
systems.
Another example of such regional programmes is the "Sumy Regional Energy Efficiency Programme
for the period of 2010-2015", which envisages the wider use of locally produced fuels, the thermal
insulation of buildings as a result of energy audits, the introduction of energy efficient lights and
energy saving electric lamps and the use of environmentally friendly energy sources and electricity
for central heating and for centralised hot water supply (the planned budget is 5.41 billion UAH).
Investment projects for the reconstruction of hydropower plants and for the efficiency of electricity
transmission capacities (like upgrading of switches) have been also co-financed through
international financial institutions and loans (credits), offered by foreign Governments and
international financial institutions (for example the EBRD) as shown in Annex 4.
For the development of the electricity sector, some benefits have been introduced though lower
rates and exemptions in Corporate Income Tax and VAT. However, for the coal mining industry,
only Corporate Income Tax benefits have been applied. Special rates for CIT and Excise Tax
exemptions have been provided for producers of biofuels and bioethylene. The preferences of
energy sector undertakings in the form of consolidated data on the basis of statistical reports by
the State Fiscal Service are presented in Annex 5.
In 2014, in order to attract foreign investments into the modernisation of the Ukrainian gas
transportation system, the Law of Ukraine "On reforming only the gas transportation system of
Ukraine”, No. 1645-VII of 14 August 2014 was adopted, setting out requirements for the reform of
the NJSC "Naftogaz of Ukraine". At the same time, this Law confirms the Government’s intention to
maintain State control over the operator of the gas transportation system of Ukraine.
90
5.1.2. Support to the Coal industry
The coal industry is one of the largest recipients of budget support in Ukraine through subsidies.
The main motivating factors for this are the following:

low productivity and chronic indebtedness of the vast majority of coal mining enterprises (cost
of coal and peat production exceeds the market price of the commodity);

the large share of coal in the energy balance of the country;

the substantial social liabilities of coal mining enterprises (they are key employers and
contrubutors to local budgets and coal is seen as an indispensible commodity for local
households);

environmental liabilities for preventing floods as a result of inadequate technology for mine
waters drainage and the risk of other man-made disasters, etc.
Budget subsidies are granted only to State-owned coal mining enterprises and companies and their
associations managed by the Ministry of Energy and the Coal Industry. Budget support measures
are available only for enterprises with functioning mining operations. There are certain privileges
for private sector companies also. These relate to compensations for free supplies of coal to
families of former or injured miners and for the consequences of industrial accidents. The
Government has also financed certain research and experimental engineering agencies developing
technological solutions for the coal sector. Coal transportation companies, engineering and design
firms and service providers in the sector can be recipients of State support only if they are
members of the coal mining companies associations.
At the same time some tax benefits (exemptions, deferrals) are available both for State-owned and
private enterprises in the coal industry.
Budget support is available from two sources: State funding for macroeconomic measures,
allocated within the general and special funds of the State budget are transferred to recipients
through the Ministry of Energy and Coal, as the principal budget administrator in the sector. A
certain share of budget support is also distributed though the State Treasury directly to recipients –
enterprises that are included in the relevant budgetary programme. The decision-making process
and procedures for the disbursement of budget subsidies to State owned enterprises under
relevant budget programmes approved for a particular year are governed by the Budget Code and
several normative acts regulating the coal industry and public finance management.
Direct budget support to the coal industry from 2009 to 2012 ranged from 11 billion UAH to 17
billion UAH annually and was intended for:

restructuring the coal and peat mining industry, including the payment of arrears on bills for
electricity consumed during previous years;

partial coverage of the cost of production of clean products by coal and peat-mining
enterprises;

assistance to enterprises producing bituminous coal, lignite (brown coal) and peat enabling
them to complete construction, technical upgrading and major repairs of their mining
equipment;

reduction in the cost of borrowings by enterprises producing bituminous coal, lignite and
peat to help them with the financing of construction and technical upgrading projects;

improvement of health protection and labour safety standards at coal-mining enterprises, in
particular, through the installation of modern air control devices and de-gassing devices in
mines;
91

partial coverage of the purchasing costs of high-performance, energy-saving compressors
and other electrical equipment for coal mines;

payment of arrears on bills for electricity consumed in previous years by State-owned coalmining enterprises, including those under liquidation;

assistance to coal and peat-mining enterprises in constructing necessary production
capacities;

investment projects promoting technical standards and upgrading of coal and peat-mining
enterprises;

technical upgrading of State-owned coal and peat-mining enterprises, including the reduction
of the cost of borrowings in 2010 and 2011 to finance the modernisation of mining
equipment programme;

payment of arrears of coal-mining enterprises on wages accrued during previous years
(except for enterprises under liquidation);

reduction of the cost of borrowings to create reliable fuel stock for thermal power stations;

construction of power-generating units of nuclear power stations, pumped-storage
hydroelectric power stations and other power stations, combined heat and power plants and
the construction and reconstruction of power transmission lines and substations.
Detailed data on budget support for the coal industry in 2007-2014 is presented in Table 3 in Annex
4. It also worth mentioning that a special Law "On amendments to Annex 3 to the Law of Ukraine"
On State Budget of Ukraine for 2014" (No. 1652-VI of 14 August 2014) was adopted in 2014 to
specifically support development of the coal industry. Its purpose was primarily to ensure timely
payments for works and services completed to contractors carrying out construction projects for
coal and peat mining enterprises (which had been previously financed through budget
programmes) and to reallocate budget funds between relevant programmes. In particular, this Law
reduced budget support under the programme: "State support for coal mining companies to
partially cover the cost of produced coal products" by 180 million UAH and increased allocations for
the programme "State support for the construction of coal and peat mining enterprises, and
technical upgrading of these enterprises".
Budget subsidies to the coal and peat mining industry remain quite substantial, although the largest
share of this money has been spent on financing preparatory measures for liquidation of coal mines
(133 million UAH) and on the restructuring of specialised companies (more than 250 million UAH).
Major recipients of this support were the State-owned enterprises:

"Donvuhlerestrukturyzatsiya",

"Luhanskvuhlerestrukturyzatsiya”,

"Vuhletorfrestrukturyzatsiya" and

"Ukrvuhlerestrukturyzatsiya".
In addition to direct budget support measures, the coal sector has also received tax benefits. Table
19 below presents, in accordance with budget codes, the details of budget revenue foregone as a
result of Corporate Income Tax (CIT) benefits for the years 2010 to 2013.
92
Table 19: Consolidated budget revenue foregone due to tax benefits (CIT) in the coal sector during
2010–2013, UAH million
Budget
code
Legal
basis
(TCU)
Incentive
2010
Corporate Income Tax benefits
11020247
11020155
Item ґ)
sub-para
138.10.6
(ІІІ)
Sub-para
5.2.11
85.33
2011
104.24
2012
2013
106.41
85.87
(Taxable income excludes): Operational
expenses (other than the cost of financing) not
directly related to production and/or sales of
goods, performance of works, provision of
services), including the cost of coal and coal
briquettes supplied gratis to coal miners and
other persons on the list of occupations
approved by the Cabinet of Ministers of Ukraine
and in the volume and in accordance with the
approved procedure, including the following
categories of workers;
-
coal mining (processing) industry workers;
-
pensioners who have worked for a coal
mining enterprise for at least 10 years
directly in the underground operations (at
least 7 years and 6 months for women); or
as a worker related to underground
operations at least for 15 years (12 years
and 6 months for women); or as a worker
engaged in surface operations (cutting,
processing and briquetting capacities) at
the existing coal mines or mines under
construction at least for 20 years (or 15
years for women);
-
handicapped veterans of war and veterans
of labour, persons awarded with “Miner’s
Glory’ or ‘Miner Valour’ medals of I, II, III
category,
-
disabled persons provided that they had
this right before their disability;
-
families of workers who died (received
occupational illness) on coal mining
(processing) enterprises and entitled to
the pension due to the loss of the
breadwinner
Gross expenses may include the cost of supply
of free coal for domestic use to coal miners in
accordance with the procedure defined by the
Cabinet of Ministers of Ukraine; including:
-
pensioners who have worked in
underground operations at a coal mining
enterprise for at least 10 years of work, or
93
х
83.31
106.41
85.87
85.33
20.93
х
х
at least 20 years in the surface operations;
-
to disabled persons who have been injured
or received occupational illness at coal
mining enterprises; as well as
-
the families of coal miners killed on the job
and entitled to a pension for the loss of
breadwinner
Moreover, Government guarantees for loans in the energy sectors have been provided on the basis
of special regulations. The following acts have either been directed to support some individual
enterprises or the whole of the energy and coal sector:

Decree of the Cabinet of Ministers “On certain issues concerning the provision of State
guarantees in 2011 to ensure the proper performance of loans received by "Lysychanskvugillya"
open joint-stock company" No. 598 of 6 June 2011;

Decree of the Cabinet of Ministers "On the approval of the social and economic development
project 'Construction of the first part of the Dnistrovska pumped-storage hydroelectric power
station consisting of three units' and on the approval of the conditions for the provision of State
guarantees in 2013 to ensure the proper performance of the obligations by the Ministry of
Energy and Coal Industry under loans received for its implementation" No. 521 of 17 July 2013;

Decree of the Cabinet of Ministers "On State guarantees for the implementation of projects to
replace natural gas with domestically produced coal" No. 855 of 22 August 2012.
The Cabinet of Ministers also adopted a Decree “On the procedure for the use of funds envisaged in
the State budget to support energy efficiency measures through a mechanism of cheaper loans” No.
439 of 13 April 2011 that resulted in a more efficient use of energy resources and the improved
competitiveness of undertakings in various industries.
5.1.3. QFAs of "Naftogaz of Ukraine"
As described earlier44 "Quasi Fiscal Activities" may have implications on the amounts of public
liabilities, without being immediately visible in the relevant budget accounts. As a result of QFAs,
the net assets of the institutions engaged in these activities are reduced by the difference between
the amount of quasi-fiscal subsidies granted and the amounts of compensation received from the
State budget, which also is accompanied by tax losses and unpaid dividends to the State. The
cumulative amount of QFAs by "Naftogaz of Ukraine" and the relevant implications for its financial
position during from 2010 to 2013 are shown in Figure 9 below.
44
Chapter 3.1.1.
94
Fig. 9: Quasi Fiscal Activities "Naftogaz of Ukraine"
VAT tax revenue foregone
47.6 billion UAH
Sales of energy resources
below cost or services to
population
Quasi-fiscal income
156.2 billion UAH
Quasi-fiscal subsidies
285.7 billion UAH
Increased obligations,
including State guarantees,
loss of net assets
50.0 billion UAH
Increased authorised capital
34.9 billion UAH
Expenditures on subsidies
7.3 billion UAH
Source: Calculations are based on the data of the Ministry of Finance of Ukraine, "Naftogaz of Ukraine" Public
45
Joint-Stock Company, the State Treasury Service of Ukraine, and the National Bank of Ukraine .
The essence of QFAs and their objectives are defined by the Resolution of the Cabinet of Ministers
"On Approval of the List of Quasi-Fiscal Activities and Public Bodies Responsible for Carrying Out
Assessment of Possible Effects of Such Activities on Budget Indicators" No. 692-r of 1 August 2012.46
The main item of the list refers to:
"Loans received by the National Joint-Stock Company ‘Naftogaz' of Ukraine and other State-owned
undertakings when the obligation to repay the loan arises in case the ownership has been changed or
for other reasons provided for in the loan agreement (bond issue prospectus)".
The National Commission for the Regulation of the Energy Market issued a decision that "Naftogaz
of Ukraine" should sell natural gas to the population and to utilities supplying heat to the
population at prices substantially lower than the cost of imported gas. The quasi-fiscal subsidies to
Naftogaz in the period from 2010 to 2013 amounted to 285.7 billion UAH, as shown in Table 20
below. This amount has been calculated by multiplying the difference between the market price
and the sales price of gas by a factor of 1.2 that also takes into account VAT.
45
The essence of quasifiscal operations, its types and consequences (on the example of the National JointStock Company ‘Naftogaz' of Ukraine ) // Finances of Ukraine № 10.-2014.- p.87-96
46
On approving the list of quasi-fiscal activities and the authorities (administrations) responsible for the
assessment of possible impact of such operations on budget figures, the Resolution of the Cabinet of
Ministers of Ukraine No. 692-p of 1 August.2012.
95
Table 20: QFAs by “Naftogaz of Ukraine” from 2011 to 2013, UAH billion
Indicator of QFA
Total, quasi-fiscal subsidies (including):
2010
2011
2012
2013
Total
49.6
60.0
89.6
86.5
285.7

subsidies to population
32.7
41.3
61.7
59.0
194.8

subsidies to utilities supplying heating
energy
16.9
18.7
27.9
27.5
90.9
26.9
33.6
48.4
47.3
156.2
8.3
10.0
14.9
14.4
47.6
Quasi-fiscal revenues of "Naftogaz of Ukraine"
Total losses from sale of gas at reduced prices, including
losses on VAT exemption for imported gas

sales of gas to the population
5.5
6.9
10.3
9.8
32.5

sales to utilities supplying heating energy
2.8
3.1
4.6
4.6
15.2
Losses of "Naftogaz of Ukraine" due to QFAs
14.5
16.4
26.3
24.7
81.9
Total budget compensations for losses due to QFAs
(including)
10.8
12.5
10.9
8.0
42.2
7.4
12.5
7.0
8.0
34.9
3.4
0
3.9
0
7.3
13.9
4.6
23.8
7.6
50.0
2,477
364
482
724
3,408
364
418
775
3,341
364
414
780
—
—
—
—
40.0
24.9
12.9
—
15.9
15.9
15.9
—
17.3
8.9
80.3
17.2
8.8
84.9
16.8
8.9
108.7
—
—
—

compensation through additional equity capital
Compensations of the difference between the price of
imported gas and selling price for utilities
Increase in liabilities of "Naftogaz Ukraine"
References:
Natural gas prices (excluding VAT and surcharges) UAH
3
per 1 thousand m :
2,002
 imported
310
 domestically produced
430
 selling price for the population
521
 selling price for utilities supplying heating energy
3
The volume of natural gas, billion m :
36.5
 imported
 domestically produced in order to meet needs of
15.9
population
17.3
 consumed by population
9.5
 consumed by utilities supplying heating energy
Liabilities of "Naftogaz of Ukraine", UAH bn.
66.4
47
Source: Calculated based on the information provided by Naftogaz of Ukraine" .
At the same time, "Naftogaz of Ukraine" has purchased natural gas at higher prices from
enterprises in which the State holds more than 50% of the registered capital (Table 21).
47
The essence of quasifiscal operations, its types and consequences (on the example of the National JointStock Company ‘Naftogaz' of Ukraine ) // Finances of Ukraine № 10.-2014.- p.87-96
96
Table 21: Price of Domestically Produced Natural Gas for "Naftogaz of Ukraine",
UAH (thousand m3)
from 1 March
2008
from
1 May 2010
from
1 January
2011
from
1 January
2013
from
1 January
2014
‘Ukrgazvydobuvannia’
196
350
350
349
349
‘Chornomornaftogaz’
289
456
456
440
452
‘Ukrnafta’
199
458
458
493
563
Company
Source: Official website of the National Commission for State Energy Regulation [web resource]. - Access:
48
http://www.nerc.gov.ua .
The total production of natural gas by these companies from 2010 to 2013 amounted to 18.1 -19.2
billion m3, which sufficiently covered the needs of the population. But most of the domestic natural
gas was used for other purposes. In particular, the declared forecast for natural gas output and
distribution to the public utilities in 2012 was 883 million m3, while the actual production was 2.1
billion m3. For 2013, it was planned to supply the population with 1 billion m3, while the actual
production was 1.9 billion m3.
The total quasi-fiscal income of "Naftogaz of Ukraine" from 2010 to 2013 (calculated as the
difference between the market price of natural gas and the cost of purchasing from the Stateowned enterprises, multiplied by volume of supply) was 156.2 billion UAH.
Carrying out QFAs also leads to tax losses. In particular, when domestically produced natural gas is
sold at prices lower than market prices, there are VAT losses to be taken into consideration. In
addition, imports of natural gas by "Naftogaz of Ukraine" are exempt from VAT. Initially this applied
only to "Naftogaz of Ukraine", but later it applied to all domestic importers. Therefore, total losses
due to VAT exemptions, in the 2010-2013 period, amounted to 47.6 billion UAH.
The difference between the amounts of quasi-fiscal subsidies and the amounts of quasi-fiscal
income and budget revenue foregone in taxes have arose from "Naftogaz of Ukraine’s" QFAs. To
compensate these losses, budgetary funds were provided to increase the company's authorised
capital in the sense of subsidies. The increase in the authorised capital of "Naftogaz of Ukraine" was
quite significant, ranging from 7.4 billion UAH in 2012 to 12.5 billion UAH in 2011; or from 0.5% to
1% of GDP. Since these budget expenses do not belong to expenditures, it may be stated that the
official budget deficit figures are understated at least by the amount of the increase in the
company's authorised capital.
These compensations were not sufficient to cover losses from QFAs. Therefore, "Naftogaz of
Ukraine" had to take further loans, as a result of which its total liabilities rose by 50 billion UAH in
thisd period to 108.7 billion UAH by the end of 2013.
Thus, quasi-fiscal activities of Naftogaz arose from several sources including49:
1. Non-payment of VAT (47.6 billion UAH);
2. Sales receipts for energy resources below market price or free provision of collective public
services or from providing goods and services to households free or at prices that are not
economically significant (156.2 billion UAH);
48
49
Ibid 47
See Fig.9 above.
97
3. Features of working capital resource-related factors: providing expanded production;
seasonal, cyclical, social issues related to the economic crisis, exchange rate volatility, etc. (50
billion UAH);
4. Updating share capital and other quasi-fiscal subsidies (7.3 + 34.9 billion UAH).
Calculations were performed using different sources and different methodological approaches. In
particular, the estimated total calculation determines the character of natural variability and cost
indicators that served as the initial information base for the expert evaluations carried out. Here it
can be noted that the supply of and payment for the formation of quasi-fiscal income will differ
based on logistical and technological (transport, storage,) factors. With regard to price subsidies,
there are discrepancies between tax and accounting for these, particularly for products with long
cycle implementation and the simultaneous application of the method of calculation of direct costs.
5.2. Support to the Steel Sector
5.2.1. Overview of the sector
Ukraine’s steel (metal) producing sector plays an important role in the national economy,
contributing approximately 20% to 25% of Ukraine’s total industrial output - or up to 5% of GDP,
thereby generating about 30% to 35% of all commodity exports. The steel sector in Ukraine is
represented by ferrous and non-ferrous metallurgy enterprises, performing, in particular, the
following cycle of activities: ore mining, production of ore concentrate and pellets, ferroalloys and
coke production, processing of metals and scrap, utilisation of metal production by-products.
Ferrous metallurgy is a key industry, producing iron ore and ferrous metals including steel, pig iron,
alloys of iron with other metals and semi-finished products from ferrous metals (slabs, rods, billets,
tubes etc.). Pig iron, steel and ferroalloys production represent the highest share in the total output
of the metal producing industry (83% in 2011), followed by pipes production and other kinds of
primary steel processing, which constitute 10% and 2% respectively50.
The structure of Ukraine’s ferrous metal industry includes around 200 enterprises. Of these, 19 are
integrated steelworks and foundries, 12 are pipe producers, more than 20 are various metal-ware
producers, 12 are coking plants, 14 refractory plants, 12 are mining enterprises/ferroalloys plants,
and more than 100 are scrap and by-product processors. The share of non-ferrous metallurgy in
total metal production output is relatively small (5%). It produces aluminium, copper, zinc,
titanium, nickel, magnesium, and other non-ferrous metals and alloys.
In 2013, the total turnover of Ukraine’s metal producing sector amounted to 198,266 million UAH,
or 17.9% of total industrial output. According to the World Steel Association, Ukraine produced
32.8 million tonnes of crude steel in 2013, accounting for about 2% of world output of crude steel
and being the world's tenth largest steel producer. The industry was seriously affected by the global
financial crisis of 2008–2010, when its production declined from 42.8 million tonnes before 2007 to
29.9 million tonnes during the crisis year 2009 (down by about 30%). The sector’s production
recovered to 35.3 million tonnes in 2011 and then shrank again to 33 million tonnes during 20122013 as a result of the slowdown of global steel demand51. Ukraine’s production of other metal
commodities in 2013 was the following:

Pig iron - 29.1 million tonnes
50
http://investukraine.com/wp-content/uploads/2012/06/Metals-and-Mining_www.pdf.
http://www.worldsteel.org/media-centre/press-releases/2014/World-crude-steel-output-increases-by-3-5-in-2013.html.
51
98

Total rolled stock – 29.0 million tonnes

Pipes - 1.6 million tonnes

Coke - 17.6 million tonnes

Iron ore - 83.8 million tonnes

Iron ore concentrates – 69.6 million tonnes.
The Ukrainian metal producing sector has a high export orientation – up to 80% of the national
output is normally exported. Metals account for the largest item in total Ukrainian exports. In
particular, in 2013, metallurgy contributed 27.8% ($17.6 billion) of total Ukrainian exports (HS
codes 72-83) – but this was considerably lower compared to the 42.2% share ($20.8 bn.) earlier in
2007. The bulk of total metallurgy exports is ferrous metals ($16.9 billion). According to the World
Steel Association, Ukraine is the 5th largest steel exporting country in the world with 24.7 million
tonnes of steel exported in 2013 (net exports – 23 million tonnes)52. Ukraine also exports
metallurgical inputs including: pig iron - 2.3 million tonnes, ferroalloys – 0.69 million tonnes, and
ferrous scrap - 0.26 million tonnes (2013). The structure of ferrous metallurgy exports from Ukraine
in general consists of semi-finished products, rolled steel and metallurgical inputs (recently about
48% rolled steel, 42% semi-finished products and 10% metallurgical inputs)53. The main
metallurgical exports from Ukraine in 2013 are presented in Table 22.
52
The figure is based on a broad definition of the steel industry and its products, including ingots, semifinished products, hot-rolled and cold-finished products, tubes, wire, and untreated castings and forgings (it
does not include metallurgical inputs).
53
http://inpress.ua/ru/economics/24848-metall-iz-ukrainy-vse-bolshim-sprosom-polzuetsya-v-mire.
99
Table 22: Top 15 commodities of Ukraine’s metallurgical exports in 2013
HS
code
Commodity
7207
7208
Semi-finished products of iron or non-alloy steel
Flat-rolled products of iron or non-alloy steel, of
a width of 600 mm or more, hot-rolled, not clad,
plated or coated
7214 Other bars and rods of iron or non-alloy steel,
not further worked than forged, hot-rolled, hotdrawn or hot-extruded, but including those
twisted after rolling
7304 Tubes, pipes and hollow profiles, seamless, of
iron (other than cast iron) or steel
7202 Ferro-alloys
7201 Pig iron and Spiegeleisen in pigs, blocks or other
primary forms
7216 Angles, shapes and sections of iron or non-alloy
steel
7213 Bars and rods, hot-rolled, in irregularly wound
coils, of iron or non-alloy steel
7209 Flat-rolled products of iron or non-alloy steel, of
a width of 600 mm or more, cold-rolled (coldreduced), not clad, plated or coated
7305 Other tubes and pipes (for example, welded,
riveted or similarly closed), having circular crosssections, the external diameter of which exceeds
406.4 mm, of iron or steel
7302 Railway or tramway track construction material
of iron or steel
7225 Flat-rolled products of other alloy steel, of a
width of 600 mm or more
7308 Structures and parts of structures
7228 Other bars and rods of other alloy steel; angles,
shapes and sections, of other alloy steel; hollow
drill bars and rods, of alloy or non-alloy steel
7306 Other tubes, pipes and hollow profiles (for
example, open seam or welded, riveted or
similarly closed), of iron or steel
Source: UN comtrade.
Trade value,
USD million
Trade quantity,
tonnes million
5,254.8
10.9
Share in total
ferrous
metallurgy
exports (HS
72-73)
31.1%
2,763.0
5.2
16.3%
1,519.9
2.6
9.0%
925.1
906.4
0.6
0.7
5.5%
5.4%
823.2
2.3
4.9%
795.9
1.3
4.7%
746.4
1.3
4.4%
489.9
0.8
2.9%
465.3
0.3
2.8%
268.8
0.2
1.6%
261.7
225.9
0.5
0.1
1.5%
1.3%
213.5
0.2
1.3%
204.5
0.3
1.2%
In addition, Ukraine is also one of the largest iron ore exporting countries. In particular, in 2013
Ukraine’s exports of iron ores and concentrates (HS 2601) amounted to 37.9 million tonnes with a
value of about US $3.7 billion (imports - 3.1 million tonnes, about US $255 million)54.
According to the State Statistics Service of Ukraine, the sector employed 322,000 persons in 2012
(the latest data available), representing about 10% of the total workforce in Ukraine’s
54
http://www.worldsteel.org/dms/internetDocumentList/bookshop/World-Steel-in-Figures2014/document/World%20Steel%20in%20Figures%202014%20Final.pdf.
100
manufacturing sector and about 1.6% of the total workforce. Ukrainian ferrous metallurgy is
concentrated in four regions: Donetsk, Dnepropetrovsk, Lugansk and Zaporozhe.
According to the World Steel Association, in 2013 Ukraine still had the highest percentage (20%) of
out-dated and energy inefficient open hearth furnace technology, used in the production of crude
steel among the worlds ten major steel producing countries.
5.2.2. Memoranda of Understandings (MoUs) between the Government and Industry
State support measures are mainly aimed at the development and restructuring of the sector,
specifying particular objectives and timeframes in various regulatory acts.
Joint MoUs between the Government, steel producers and ore mining enterprises have become
good practice in Ukraine. Such MoUs are not considered to be legislative documents, since they are
typically enacted by special governmental resolutions and orders. Usually, they contain mutual
obligations on the parties for particular short-term measures to support steel producers and to
protect the domestic market against external economic impacts, often caused by substantial price
fluctuations in world markets.
From 2009 to 2013, two MoUs were signed: One signed for the period from 2008 to 2012 and the
second one in 2013.
Memorandum of Understanding of 10 November 2008
The export-oriented steel industry was severely hit by the global economic crisis of 2008-2009. In
2009 the nominal exports of metal products contracted by about 55%, based on previous yearly
figures. As a result, metal outputs shrank by 30%. The decline in the output of the largest exportoriented industries (steel industry, machine building, and chemical industry) was further
transmitted via cross-industry links to transport, financial, trade sectors and the national economy
as a whole, leading to a deep fall of the Ukrainian GDP of about 15% in 2009.
On 10 November 2008, the Cabinet of Ministers of Ukraine and companies operating in the
metallurgical and ore mining business signed an MoU to minimise the negative consequences of
the economic crisis in the industry. Initially, the MoU was intended for a short period only up to 1
January 2009, but later during 2009–2010 it was extended several times - until 31 December 2009,
then until 1 April 2010 and, finally, until 1 July 2010.
The MoU was signed by the largest metallurgical companies of Ukraine: Smart Holding, Industrial
Union of Donbas, Metinvest Holding, Arcelor Mittal Kryviy Rih, MMK Illicha, PJSC Donetskstal, LLC
Evraz Ukraine, LLC Interpipe Management, and others. The MoU was open for all enterprises of the
steel/metal-producing sector to join. The leaders of the Federation of Metallurgical Enterprises of
Ukraine, the Trade Union of Mining and Metallurgical Industry Workers, and the Federation of
Trade Unions of Ukraine also signed the MoU.
According to the MoU, it aimed to overcome the effects of the decrease in steel production in
Ukraine, to stabilise the internal prices for ore mining, coal and metallurgical production, to
preserve jobs and prevailing salary rates, to develop the domestic market and to decrease its
dependence on price fluctuations in relevant world markets.
Mining and metallurgical companies committed themselves to:

maintain production capacities in working order;

maintain jobs, the level of wages and other social guarantees for workers in the sectors;
101

implement measures to reduce the cost of steel production and to ensure wider use of coke in
order to reduce the use of natural gas;

reach an agreement with the owners of raw materials, ferroalloys and fuel resources, regarding
domestic sales of their products at prices no higher than the world prices;

take the whole volume of coking coal and anthracite proposed by the State coal companies at
adequate prices in accordance with market conditions, etc.
On 22 July 2009 two additional conditions for granting benefits to mining and metallurgical
companies (eligibility requirements) were added under the MoU:
1) deliveries of steel products to the domestic market had to be made at prices not higher than
the companies’ export prices;
2) companies had to ensure the absence of debts to the budgets (no tax liabilities), to the pension
fund, the National Gas Company Naftogaz, suppliers of coal of domestic origin, as well as the
absence of arrears in wages and the proper implementation of trade agreements with
employees.
Under the MoU, the Government, in its turn, was obliged:

to reduce the cost of steel production by lowering electricity and rail transportation tariffs; by
ensuring that the supply of natural gas would be made at a price equal to the import price plus
transportation costs;

to stimulate lower prices for coking coal by increasing the scope of State support for coal
mining enterprises ;

to provide financial support to metallurgical enterprises; in particular, by implementing a 5-day
VAT refund period, by ensuring that the State monopolies repaid their debts to metallurgical
enterprises, by extending the period for the return of currency gains up to 360 days for energysaving investment projects and by reducing the income tax rate down to 20% in the case of
reinvestments;

to stabilise domestic prices by introducing a requirement for enterprises to declare their
intentions to change prices on mining, coal, coke, ferroalloy and steel products;

to increase domestic demand for steel products through State orders and public procurement.
However, these obligations were only partly fulfilled; both by the enterprises and by the
Government.
In order to fulfill its obligations regarding regulated tariffs on services provided by natural
monopolies, the Government adopted Resolutions No. 925 of 14 October 2008 and No. 289 of 24
March 2010. These were effective from October 2008 to 30 June 2010. Although the Cabinet of
Ministers adopted some of the anti-crisis measures relating to the mining and metal industries in
September 2008, all measures relating to support of the mining and metal producing industries
were officially invalidated since 1 July 2010.
According to calculations by the Ministry of Industrial Policy of Ukraine, the total amount of State
support to metal and mining enterprises under the MoU of 2008 was 1.9 billion UAH in the period
of application of these anti-crisis measures and privileges55.
Measures to support the mining and metallurgical industries under the MoU were mainly
implemented in the following form:
55
http://www.unian.ua/politics/379791-azarov-vikonav-sche-odnu-vimogu-mvf.html.
102
a) Reduction of the regulated price of natural gas for mining and metal producing companies:

Legal basis: The National Energy and Utilities Regulatory Commission (NERC) approved price
caps (ceilings) for natural gas supplied to mining and metal producing enterprises at the level
of 1,899.25 UAH per 1,000 cubic meters (VAT, surcharges, tariffs for transportation,
distribution and supply transportation tariffs, distribution and supply of natural gas at
regulated tariffs were not included) for the year 2009, while for other industrial consumers it
was set as 2,020.25 UAH per 1,000 cubic meters (Resolution of NERC N 57 of 29 January 2009).
Thus, mining and metal producing companies were granted a 6% decrease in the regulated
price of natural gas compared to the price paid by other industrial consumers in Ukraine.

Recipients: the list of mining and metal producing enterprises entitled for the preferential price
of natural gas was established by the Resolution of the Cabinet of Ministers No. 925 of 14
October 2008. It consisted of 57 enterprises involved in the ferrous and non-ferrous metallurgy
sectors (including pipe, ferroalloys producers etc.).

Duration: The preferential price of natural gas for mining and metal companies was in effect
during 2009 and the first quarter of 2010.
b) Abolishing the surcharge on the natural gas tariff for mining and metal producing enterprises

Legal basis: The Cabinet of Ministers levied no surcharge on the natural gas tariff for mining
and metal producing companies (as well as chemical enterprises), effective since September
2008 (Resolution No. 817 of 10 September 2008) and during October 2008 - March 2009 and
January to March 2010 (Resolution No. 925 of 14 October 2008). The surcharge on the natural
gas tariff for other industrial consumers was kept at the level of 12% during October-December
2008. Later on, the Cabinet of Ministers waived the surcharge on the natural gas tariff for all
industrial consumers during the period from January to April 2009 (Resolution No. 1161 of 27
December 2008) but it surcharged the use of natural gas again up to 2% for all industrial
consumers (except chemical enterprises), and this has been effective since May 2009 until the
present (Resolution No. 359 of 14 April 2009).

Recipients: The list of mining and metal producing enterprises entitled to preferential prices for
natural gas, was established by Resolution of Cabinet of Ministers No. 925 of 14 October 2008.

Eligibility: The companies included in the list for preferential prices of natural gas and electricity
should not have indebtedness for consumed gas (100 per cent payment) (Resolution No. 1425
of 23 December 2009).

Amount of benefit: Taking into account the above cancellation of the surcharge on the natural
gas tariffs for industrial consumers, from September to December 2008, mining and metal
companies were granted preferential treatment (0% - 12% was levied on other industrial
enterprises) and from January to March 2010 (0% vs, 2%). The amount of the benefit received
depended, of course, on the volumes of natural gas consumed by the listed mining and metal
producing companies during this period. According to the Cabinet of Ministers, as a result of
not paying surcharges on the natural gas tariff from October to December 2008, the listed
mining and metal producing companies saved 228.8 million UAH56.
c) Suspension of increases in regulated retail tariff for supply of electricity to undertakings in
mining and metal producing sectors

Legal basis: In accordance with Resolution of the Cabinet of Ministers No. 925 of 14 October
2008, NERC suspended the planned increase of the regulated retail tariff on electricity for
56
http://www.kmu.gov.ua/control/publish/news_article?art_id=202540608.
103
mining and metal producing enterprises (as well as for chemical and coke producers) and fixed
it at the level of October 2008, effective during the period from 1 November 2008 to 1 April
2010 (for coke producers it was effective from 1 December 2008 until 1 April 2010) - NERC
Resolution No. 1240 of 27 October 2008. This measure was, however, not applicable for
supplies of electricity at the non-regulated tariffs. In particular, the regulated retail tariffs on
electricity at the level of October 2008 was set, excluding VAT, as follows:



consumers of the 1st voltage class - 42.21 kop./kWh;
consumers of the 2nd voltage class – 56.24 kop./kWh.
According to NERC Resolution No. 289 of 24 March 2010, NERC fixed the regulated tariff on
electricity for these enterprises again, but this time at a higher level than in November 2009.
The new tariff was effective from 1 April to 30 June 2010 (NERC Resolution No. 537 of 13 May
2010). In particular, the regulated retail tariffs on electricity were set at the level of November
2009, excluding VAT, as follows:


consumers of the 1st voltage class - 45.72 kop./kWh;
consumers of the 2nd voltage class – 60.68 kop./kWh.

Recipients: The list of mining and metal producing enterprises (as well as coke and chemical
producers) entitled to the preferential retail price of electricity was established by the Cabinet
of Ministers Resolution No. 925 of 14 October 2008.

Eligibility: Enterprises should not have debts for the consumed natural gas and electricity
(Resolution No. 1425 of 23 December 2009). Otherwise, electricity was treated as that supplied
at the general regulated retail tariffs applied to all other industrial consumers.
A more detailed overview of the regulated retail tariffs for the supply of electricity in the
mentioned sectors is given in Table 23.
104
Table 23: Overview of regulated retail tariff for supply of electricity to enterprises in mining,
metal, coking and chemical sectors compared to other industrial consumers
(from November 2008 to June 2010)
Mining and metal
enterprises (MME)
Date
1st
voltage
class,
kop./kWh
November
42.21
2008
December
42.21
2008
January 2009
42.21
February 2009
42.21
March 2009
42.21
April 2009
42.21
May 2009
42.21
June 2009
42.21
July 2009
42.21
August 2009
42.21
September
42.21
2009
October 2009
42.21
November
42.21
2009
December
42.21
2009
January 2010
42.21
February 2010
42.21
March 2010
42.21
April 2010
45.72
May 2010
45.72
June 2010
45.72
Source: Resolutions of NERC.

Industrial consumers
Benefit of MME
compared to other
industrial consumers
1st
2nd
voltage
voltage
class, %
class, %
2nd voltage
class,
kop./kWh
1st voltage
class,
kop./kWh
2nd voltage
class,
kop./kWh
56.24
43.59
58.46
3.2%
3.8%
56.24
43.59-43.62*
58.46
3.2%
3.8%
56.24
56.24
56.24
56.24
56.24
56.24
56.24
56.24
43.59
43.59
43.59
43.59
43.59
43.59
43.59
43.59
58.46
58.46
58.46
58.46
58.46
58.46
58.46
58.46
3.2%
3.2%
3.2%
3.2%
3.2%
3.2%
3.2%
3.2%
3.8%
3.8%
3.8%
3.8%
3.8%
3.8%
3.8%
3.8%
56.24
43.59
58.46
3.2%
3.8%
56.24
43.59
58.46
3.2%
3.8%
56.24
45.72
60.68
7.7%
7.3%
56.24
46.17
61.30
8.6%
8.3%
56.24
56.24
56.24
60.68
60.68
60.68
47.32
48.50
48.50
48.50
50.92
52.04
62.71
64.28
64.28
64.28
66.85
68.05
10.8%
13.0%
13.0%
5.7%
10.2%
12.1%
10.3%
12.5%
12.5%
5.6%
9.2%
10.8%
Amount of benefits: Electricity distribution companies were compensated for losses generated
from supplies of electricity to metal producers, mining and chemical enterprises at a reduced
regulated tariff. This compensation was included in the calculation of the wholesale market
price for electricity to be paid by other consumers, industrial enterprises and budget
organisations (cross-subsidising). In total, the compensation payments amounted to 1,532.56
million UAH during the period when the reduced tariffs were applied (Table 24).
105
Table 24. Compensation of losses from supplying electricity to ore mining and metal
and chemical enterprises at a preferential regulated tariff
Period
Compensation paid , million
UAH
2008 (November to
December)
2009
(January
to
December)
2010 (January to June)
Source: Activity Report of the NERC in 2012.
Share in total compensation
payments
41.99
0.3%
512.14
2.6%
978.43
4.2%
d) Fixing rail transportation tariffs for mining enterprises and metal producers

Legislative measures and brief description: Following a decision by the Cabinet of Ministers, the
State-owned railway company Ukrzaliznytsia (UZ) decreased its tariffs on transportation of
certain types of freight by metal producers and mining enterprises (namely: ores, iron
concentrates and coke) by 10% for domestic transportation and by 9% for transportation of
imported goods and limestone. This decision was effective from 1 September 2008. In October
2008, UZ also did not apply the planned increased tariff for rail transportation of freights by
metal producers and mining companies as envisaged by the Decree of the Ministry of Transport
No. 955 of 30 July 2008.

Suspension of tariffs indexation: According to the Cabinet of Ministers Resolutions No. 925 of
14 October 2008 and No. 289 of 24 March 2010, the planned change (indexation) in tariffs for
transportation of fright by metal producers, mining and chemical enterprises was suspended
and these tariffs were fixed at the level of October 2008 (i.e. at reduced rates) for the period
from 1 November 2008 to 30 April 2010 (duration of the measure)57.

Recipients: All enterprises in this sector were included. The Cabinet of Ministers approved a list
of products (including iron ore, coke, ferrous metals, metal scrap, fertilisers) and types of
transportation services (domestic, imports, exports), for which the tariffs increase was
suspended (Resolutions No. 925 of 14 October 2008).

Amount of benefit: The UZ estimated the amount of its foregone earnings as a result of the
privileges granted to metal producers and mining enterprises to be equal to some 1.2 billion
UAH58.
Notwithstanding the short-term positive effects of State support measures under the MoUs with
steel producers, their long-term economic effects were rather contradictory. They enhanced crosssubsidies in the electricity and freight transportation sectors. By such measures, the Government
created grounds for countervailing or anti-dumping investigations against Ukrainian exports. At the
same time, the Government took action to solve the problem of VAT reimbursement to steel
exporters, reflecting the inconsistency of the Government policy in this area. This demonstrates the
need to reform non-transparent and discriminating policies of State support to undertakings in
Ukraine in accordance with best international standards.
57
In the period 2007-2008 the Ministry of Transport implemented a gradual indexation of tariffs on freight
railway transportation. As a result, tariffs were increased by 80 percent from March/April 2007 to September
2008 – see
http://siteresources.worldbank.org/UKRAINEINUKRAINIANEXTN/Resources/UTTF_02_UA.indd.pdf.
58
http://delo.ua/ukraine/metallurgi-udachno-vospolzoval-134777/.
106
e) Preferential tariffs on supply of electricity for production needs of certain electro-metallurgical
enterprises

Legal basis: two particular measures have been taken into consideration:
1) An MoU between the Cabinet of Ministers and the two largest electrometallurgical enterprises
Stakhanov Ferroalloy Plant and Zaporizhia Ferroalloy was signed on 5 February 2013. The MoU was
aimed at resuming the operations of these two large enterprises (which were heavily dependent on
electricity supplies and which had stopped production in December 2012) by establishing for them
a reduced tariff for electricity. After signing the MoU, providing them with cheaper energy, the
enterprises resumed their work on 1 March 2013 onwards. Under the MoU, the Government was
obliged to give electrometallurgical enterprises, which met the criteria, the right to purchase
electricity on the wholesale electricity market of Ukraine at the wholesale price, without any
additional charges.
The Stakhanov and Zaporizhia ferroalloy plants were subject to the following obligations:

to invest in the modernisation and upgrading of their electrometallurgical capacities;
particularly in order to reduce energy consumption and to improve the environmental
performance of their production capacities (including a reduction in the cost of electricity in
the overall cost structure by 2% annually);

to restore jobs, to avoid debts in taxes and pension fund liabilities, to avoid wages arrears
and to ensure a gradual increase of wages;

to report on a quarterly basis concerning the amount of investments made and on the
share of electricity costs in unit production costs;

to sell products on the domestic market at prices not exceeding their relevant export
prices;

to change procurement and sales procedures by removing offshore intermediaries.
2) Resolution of the Cabinet of Ministers No. 912 of 1 October 2012, adopted in the framework of
the MoU, stipulated the criteria for eligibility of beneficiaries and a procedure for establishing the
preferential tariff. In particular, the preferential tariff had to be equal to the wholesale market price
of electricity and was to exclude subsidies for the compensation of losses associated with the
supply of electricity at regulated retail tariffs. Eligibility criteria covered electrometallurgical
enterprises with an average monthly electricity consumption of at least 60 million kilowatt-hours in
2011, and a share of electricity costs in overall production costs of at least 30%. These criteria were
actually formulated in such a way as to precisely fit the situation of the two signatories of the MoU.

Duration: The measure was effective from 1 February to 31 December 2013 and then
prolonged until 31 December 2014.

Amount of benefit: According to NERC, the share of State subsidies in the structure of the
wholesale market price of electricity reached 30% in 2013 (218.29 UAH/MWh × h)59. During the
corresponding period of 2013, Stakhanov Ferroalloy Plant consumed 801.9 million KWh of
electricity, and Zaporizhya Ferroalloy Plant 1409.2 million KWh. This amounts to a total of
2211.1 million KWh. As a result, the enterprises received a benefit of 483 million UAH.
The operations of the Memorandum were prolonged for the year 2014. Two more enterprises
joined the MOU, namely Nikopol Ferroalloy Plant and Pobuzhya Ferroalloy Plant. To implement the
59
http://www3.nerc.gov.ua/?id=11197.
107
MoU, the Cabinet of Ministers adopted Resolution No. 925 of 18 December 2013, which provides
the same privileges to the two additional enterprises. At the same time, there were some changes
in the criteria. These concerned the reference year for energy consumption (electrometallurgical
enterprises with an average monthly electricity consumption of at least 60 million kilowatt-hours in
2011 and/or 2012, and/or over six months of 2013, and the share of electricity cost in overall
production costs of at least 30%).
Memorandum of Understanding of 14 June 2013
On 14 June 2013 the Cabinet of Ministers signed a further MoU with enterprises in the
metallurgical sector. The list of signatories was almost the same as in the MoU of 2008:
“Metinvest”, “Industrial Union of Donbass”, LLC “Interpipe Management”, “Arcelor Mittal Kryviy
Rih”, PJSC “Donetskstal” and LLC “Evraz Ukraine”. In addition, the following organisations signed
the MoU: The Trade Union of the Federation of Metallurgy Workers of Ukraine and the Trade Union
of Mining and Metallurgical Industry Workers. The declared objective of the MoU was to further
support metallurgical enterprises whose financial performance indicators had deteriorated due to
falling world prices for their products and increased prices for energy and raw materials, as well as
for services of natural monopolies. The MOU was effective for one year - from 1 June 2013 to 1
June 2014.
More specifically, the MoU was to “create conditions for the stabilisation of operations in mining
and steel industries and for improving the competitiveness of domestic steel products and
preserving jobs”. In order to achieve these goals, the Government undertook to establish certain
tax benefits, lower tariffs for rail transportation services provided for enterprises in the metal and
mining industry and some other measures. In particular, the Government committed itself to:

Prevent increases in electricity prices for enterprises operating in the mining and steel sectors
by more than 5% of the price on 1 April 2013 for the whole term of the MoU’s operations;

Prevent increases in rail transportation services tariffs for enterprises operating in the mining
and steel sectors by more than 5% of the rates prevailing in 2012;

Ensure the right of enterprises to apply certain adjustments to the rates of charge for the
extraction of mineral resources;

Promptly reimburse VAT paid by companies in the mining and steel sector and prevent the
growth of outstanding VAT repayments during the term of the MoU;

Promptly return overpaid amounts of taxes by mining and steel producing companies;

Increase domestic demand for steel products;

Facilitate the revision of environmental standards (in particular as regards carbon monoxide
emissions and the adoption of technological standards) in order to reflect the maximum
achievable levels of environmental performance for industrial installations in this sector;

Determine a procedure for the reimbursement of some amount of the environmental tax paid
by mining and steel producing companies in order to finance ecological modernisation projects;

Amend legislation providing Government guarantees to private enterprises in the mining and
steel sector implementing modernisation projects.
In their turn, the companies-signatories agreed to maintain the level of product output, to sell their
products on the domestic markets at prices not exceeding the relevant world prices, to preserve
jobs and pay wages and social contributions for the sectors’ employees, to finance social
infrastructure in the territories where mining and steel companies operate, to implement
investment and modernisation projects and to fulfil some other obligations.
108
However, this MoU remained only a declaration because the signatories did not keep some of their
commitments - for example, concerning the avoidance of increase prices for services by natural
monopolies. Moreover, there were no special Resolutions adopted by the Cabinet of Ministries on
the implementation of obligations under the MoU.
5.2.3. Tax benefits to domestic consumers of metal scrap

Legal basis: Tax Code of Ukraine (Law of Ukraine No. 2755-VI of 2 December 2010), Chapter XX,
Sub-chapter 2, paragraph 23 stipulates that as a temporary measure supplies (including
imports) and exports of ferrous and non-ferrous metal scrap shall not be subject to VAT. It also
meant that these transactions were not eligible for VAT credit and refund.

Recipients: There were no special criteria for eligible enterprises. This provision of Tax Code was
applicable to all supplies of ferrous and non-ferrous metal scrap, according to a list approved by
the Resolution of the Cabinet of Ministers No. 15 of 12 January 2011. The main beneficiaries
include steel processors that use metal scrap as a raw material for their production needs and
which they bought on the domestic market or abroad.

Tax benefit granted: The main benefit for steel producers buying and using scrap metal was the
exemption from VAT (20%). On the other hand, the exemption of exports of scrap metal from
the VAT refund was supposed to discourage exports and thus to improving market conditions
for domestic consumers of scrap metal (i.e. less pressure on domestic prices of scrap metal).

Duration: This tax benefit was operated in the period from 1 January 2011 to 1 January 2015.

Amount of benefit: The amount of VAT calculated for imports/exports transactions with scrap
metal that was not paid by (or returned to) scrap suppliers is shown in Table 25.
Imports
Exports
Table 25: Import - export of metal scrap by Ukraine in 2013 (HS code 7204)
Trade value,
Trade quantity,
VAT (not imposed),
(US$ million)
(tonnes)
(US$ million)
89,4
238,533.6
17.9
79.6
255,272.3
15.9
Source: UN Comtrade
Further tax and customs benefits were introduced for investment projects carried out by metal
producers and processors, as they were regarded as a priority economic sector, on the basis of the
following legislative acts:

Law of Ukraine No. 5205-VI of 6 September 2012 "On incentives for investment activities
in priority sectors of the economy aimed at job creation";

Law of Ukraine No. 5210-VI of 6 September 2012 "On Amendments to the Customs Code
of Ukraine";

Law of Ukraine No. 5211-VI of 6 September 2012 "On Amendments to Section XX
"Transitional Provisions" of Tax Code of Ukraine concerning the Special Regime of
Taxation for Undertakings Implementing Investment Projects in Priority Sectors of the
Economy";

Resolution of the Cabinet of Ministers No. 843-р of 14 August 2013 “On the List of
Priority Economic Sectors”;
109

Resolution of the Cabinet of Ministers No. 715 of 14 August 2013 “On the Selection,
Approval and Registration of Investment Projects in Priority Sectors of the Economy and
Requirements for Such Projects”.
In 2012 the Government adopted three acts providing a range of tax and customs privileges for
undertakings implementing investment projects in certain specified priority sectors. In August 2013
the Government approved relevant implementing regulations under these laws. Resolution No.
843-р of 14 August 2013 referred to “import-substituting metallurgy” as one of the six priority
sectors, eligible for benefits under the above listed laws. At the same time, there is no clear legal
definition of “import-substituting metallurgy" as such or any justification as to why it was granted
this priority status.
Benefits for undertakings implementing investment projects under the above legal acts include:
Lower tax rates and no income tax liability until 31 December 2017, and only at an 8% tax rate until
31 December 2022, exemptions and accelerated depreciation allowances for certain “groups” of
assets and exemption from customs duties on imported equipment intended for use in the
technological process, etc.
By the end of 2014 no official data have been published concerning benefits to undertakings,
working in the regime of approved investment projects in “import-substituting metallurgy” sector,
or concerning the amounts of benefits granted under this title.
5.2.4. Budget support to the Steel sector
The Ukrainian steel/metal producing sector received only limited direct support from the State
budget. In general, budget funds have been granted to State-owned mining enterprises (extracting
iron ore) in connection with restructuring, conservation and liquidation operations. Currently, there
does not seem to be any special programme in operation aimed at the financial support of the steel
and mining sector. The last sector development programme for the mining and metallurgic industry
was in effect from 2004 to 2011.
There were two budget support programmes for the steel and mining sectors. One was related to
R&D measures and the other concerned the restructuring of mining and steel enterprises under
which benefits were obtained only by a single enterprise.
a) Budget Support for R&D activities
From 2004 to 2013 undertakings in the steel and mining sectors received budget support for their
R&D activities:

Legal basis: the State Programme for the development and reform in the mining and
metallurgical sectors in the period from 2004 until 2011 was approved by the Cabinet of
Ministers Resolution No. 967 of 28 July 2004. The Programme intended to identify priority
areas for further restructuring in this sector, for the modernisation of production capacities and
for their technical upgrading. This development programme was financed mainly within the
budget support programme "Applied scientific and technical developments, implementation of
works for State target programmes and Government orders in industry," (KPKVK 2601030). The
Programme envisaged that scientific, technical and informational support activities (mostly
research activities) were to be financed from the State budget. It also determined the priority
areas for research, such as the elaboration of resource-saving technologies for the
development of domestic ore deposits with a high extraction of mineral resources and their
complex use, the creation of new energy-saving technologies for production and continuous
casting of steel, including the production of thin slabs, the use of secondary resources of
metallurgical production, exploration works in the fields of raw materials, etc.
110

Beneficiaries: The main recipients of the budget support were scientific and research
institutions, organisations such as the National Academy of Sciences, industry research and
academic institutions, R&D units of the metallurgical enterprises and Universities.

Duration: The timeframe established for the implementation of the State Programme for
development and reforming of the mining and metallurgical sectors was defined as the period
from 2004 to 2011.
Table 26 shows the planned and actual financing of the Programme from 2004 to 2011.
Table 26: Budget support within the State programme for development and reform of the ore
mining and metallurgical sectors until 2011 (planned and actual)
Years
2004
2005
2006
2007
2008
2009
2010
2011
Total
Planned
(UAH million)
5.39
5.2
5
4.1
4
3.9
3.9
3.9
35.39
Actually available
(UAH million)
No funds allocated
0.6
0.6
0.6
1.47
1.47
1.37
1.06
7.17 (20 % of the planned
amount)
Source: State Budgets for the respective years.

Benefits:
During the period of implementation (2004 to 2011), the State Programme for the development
and reform of the mining and metallurgical sectors was only financed through the State budget in
the amount of 7.17million UAH, corresponding to approximately 20% of the planned amount of
financing.
b)
Budget support for restructuring enterprises in the steel and ore mining sectors
Three budget support programmes were adopted for economic restructuring purposes. The first
was targeted at the restructuring of only one particular State-owned enterprise, the second was
directed towards the rescue of two other State-owned enterprises and the third was related to the
conservation of the production capacities of another State-owned enterprise. The three Rescue and
Restructuring programmes in the sector were the following:
1) Budget support programme “Maintenance of the Kryvyi Rig mining and processing plant of
oxidized ore and reopening of construction of its production capacities”, KPKVK 1201480.
The purpose of the budget support was to complete a construction project inherited from
the Soviet Union. This task remains unfinished even today after more than 20 years of its
history. The budget support was directed to maintain technical conditions of the unfinished
production capacities, to pay wages for the enterprise’s employees, to meet fiscal
obligations of previous years, etc. The amounts directed from the State budget for
maintaining this unfinished plant were increased steadily and in recent years they reached
about 40 million UAH per year (see Table 27 below). The budget support was provided
annually in the period 2009 to 2013.
111
However, the budget support failed to improve the financial and economic performance of
the enterprise. According to the Accounting Chamber of Ukraine, 70.8% of the budget
funds (which were higher than 75 million UAH), directed under this programme from 2010
to 2012, were used in violation of the budget law and spent inefficiently60.
2)
Budget support programme “Restructuring and liquidation of enterprises of the rock
chemistry and implementation of necessary environmental protection measures in the areas
of their location, as well as restructuring of enterprises engaged in the underground iron ore
extraction” (KPKVK 1201470). Currently, this programme provides financing for two
enterprises: The State-owned enterprise "Kryvbasshakhtozakryttya" (metal producing and
mining sectors) and the State- owned enterprise “Ecotransenergo” (rock chemistry
industry).
The purpose of budget support for "Kryvbasshakhtozakryttya" (established in 2004) was to
overcome environmental impacts from existing and closed ore mining capacities, including
hydro-geological protection of mining objects and surrounding territories, resolving social
issues resulting from the restructuring project and the closure of unprofitable mines. The
budget support programme was designed for the period from 2009 to 2013. The amounts
of budget support under this programme are shown in Table 27.
3)
Budget support programme “Conservation of production capacities of industrial
enterprises”, KPKVK 1201460. The only recipient of this budget support programme was the
State-owned enterprise of hydro-geological protection “Mine 2-bis”. Its purpose was
formulated as the maintenance of production capacities in the dry conservation mode and
hydro-geological protection to prevent overflow of groundwater into neighbouring
coalmines. The budget support programme was established for the period 2009 to 2013.
The amounts granted under this budget support are also shown in Table 27.
Table 27: Budget spending on restructuring of industrial enterprises including steel and mining
enterprises, UAH million
Budget support programme “Maintenance of the Kryvyi Rig mining
and processing plant of oxidized ore and reopening of construction
of its production capacities”
Budget support programme “Restructuring and liquidation of
enterprises of the rock chemistry and implementation of necessary
environmental protection measures in the areas of their location,
as well as restructuring of enterprises engaged in the underground
iron ore extraction”
Budget support programme “Conservation of production capacity
of industrial enterprises”
Source: Reports of State Treasury Service of Ukraine.
60
2011
42.1
2012
44.5
2013
37.7
62.5
33.4
21.4
9.7
8.2
7.9
http://www.ac-rada.gov.ua/control/main/uk/publish/article/16740668.
112
5.3. Support to Aircraft and Shipbuilding Enterprises
5.3.1. Overview of Legal basis for State support
For many years, the aircraft and shipbuilding industries have been viewed as priority sectors of the
Ukrainian economy. The legal basis for the assessment of priority sectors, including critical
technologies, was the Law of Ukraine “On the Development of the Aircraft Industry” No. 2660-III of
12 July 2001 which identified the aircraft construction industry as a priority sector of the Ukrainian
economy, while the output of the research and development activities in the aircraft sector were
considered to be “critical technologies”. The Law of Ukraine “On State Support of the Shipbuilding
Industry of Ukraine” No. 774/97-BP of 23 December 1997 provides a similar priority status for the
shipbuilding industry.
For a detailed list of legal acts benefitting these two sectors, see Annex 7.
5.3.2. State support policies for the aircraft construction and shipbuilding industries
The State has declared its interest in the dynamic development of these two sectors, involving
increased production capacities and technological upgrading with the provision of State support.
The purpose was to gain a higher level of competitiveness on international and domestic markets
(in particular, to substitute imports by domestically manufactured products), and to use scarce
financial and human resources efficiently.
The State support has been provided through direct subsidies from the State budget or preferential
taxation for undertakings operating in these sectors. The new Tax Code of Ukraine of 2010
reconfirmed almost all tax benefits for these sectors from earlier tax codes.
In particular, since 1 January 2011 and during the subsequent period of 10 years, all profits of
aircraft construction enterprises from their core activities (class 30.30 group 30.3 section 30 of the
Classifier of Economic Activities, KVED trade classification DK 009:2010) are exempted from
taxation together with the revenues received from R&D, designing activities (class 72.19 group 72.1
Section 72 KVED DK 009: 2010) carried out for the needs of the aircraft industry (subparagraph “ґ”,
paragraph 17, subsection 4 of section XX).
The said Class 30.30 group 30.3 of Section 30 of KVED DK 009:2010 includes the following activities:

production of airplanes for transportation of passengers or cargoes, for military or
sporting use, or other purposes;

production of helicopters, gliders, hang-gliders, airships, aerostatic balloons, air balloons;

production of components and accessories for aircrafts;

production of ground simulators for pilots;

production of spacecraft and launch vehicles, artificial satellites, interplanetary probes, space
stations, reusable space shuttles (shuttles), production of intercontinental ballistic missiles
(ICBM);

complete overhaul, reconstruction of aircrafts and their engines;

production of seats for aircrafts.
113
Class 72.19 group 72.1 section 72 of KVED DK 009:2010, as mentioned above, includes research and
experimental development in the field of natural sciences and engineering, except for
biotechnologies.
In a similar way, benefits are provided in the shipbuilding sector. Preferential treatment of
shipbuilding industry enterprises (subparagraph “г", paragraph 17, subsection 4, section XX of the
TCU) provides for a 10-year tax exemption for profits received from core activities of shipbuilding
enterprises (Class 35.11 group 35 of KVED DK 009: 2005).
According to this trade classification, Class 35.11 group 35 DK 009: 2005 encompasses DK 009: 2010
of Class 30.11, namely: construction of ships and floating structures and Class 33.15: Repair and
maintenance of ships and boats, including construction of industrial ships (passenger ships, ferries,
cargo ships, tankers, tugs, warships, fishing vessels and floating processing fish-factories,
hovercrafts, except for entertainment vessels, drilling platforms, floating or submersible ones, etc.).
In order to support the shipbuilding industry, the Law of Ukraine "On Carrying Out an Economic
Experiment Concerning State Support of the Shipbuilding Industry" No. 5209-VI of 6 September
2012, provides for a whole range of State support measures, in particular:

State guarantees for loans by foreign States, banks, international financial organisations and to
secure obligations towards foreign customers under international contracts;

Partial compensation of interest rates under loans provided by commercial banks up to the level
of the discount rate of the National Bank of Ukraine, as of the date of payment of relevant
interest under received loans;

Preferences in taxation and/or special taxation regimes in accordance with the procedure
established by the Tax Code of Ukraine;

VAT and customs duty exemptions, in accordance with the procedure established by the
Customs Code, for imports of goods (products) used in the construction, repairs and
modernisation of sea vessels, river vessels and other watercraft, if such goods are not
manufactured in Ukraine or the domestically manufactured products do not comply with
international certification requirements or with contractual requirements of customers ordering
the vessels;

Reduction of social charges on wages to stimulate higher wages in the industry;

Increased number of State orders, including defence needs;

Stimulation of exports of the shipbuilding industry.
In addition, write offs have been provided on the amounts of penalties, fines and other such
pecuniary sanctions for arrears in taxes and duties (obligatory payments) to the relevant public
budgets and special public funds as registered by shipbuilding enterprises on 1 January 2013.
The overall budget revenues foregone, calculated on the basis of tax benefits to aircraft
construction and shipbuilding enterprises, according to the respective control authorities, are
provided in Table 28.
114
Table 28: Budget revenue foregones due to tax benefits for aircraft and shipbuilding
industries
2010 - 2013, UAH million.
Benefit
2010
2011
2012
2013
-
806.72
854.55
387.10
Benefits on land tax
94.58
110.51
109.53
111.53
Benefits on VAT
Total budget revenue foregone in the aircraft
industry
Ratio to GDP, per cent
107.54
17.43
82.68
14.87
202.12
934.66
1,046.76
513.50
0.02
0.07
0.07
0.04
Aircraft Construction industry
Benefits on corporate income tax
Shipbuilding industry
Benefits on corporate income tax
-
7.09
4.16
74.26
Benefits on land fees
Total budget revenue foregone in the shipbuilding
industry
Ratio in GDP, per cent
-
11.46
33.26
32.63
-
18.55
37.42
106.89
0.001
Source: Calculations by the expert based on the data from fiscal bodies.
0.003
0.007
According to this Table, the ratio of tax benefits received by aircraft and shipbuilding enterprises in
relation to GDP during the period of latest four years has been continuously very low. However, the
dynamics of relevant benefits are quite significant: the budget revenues foregone due to tax
benefits did not increase and for some categories even decreased (for instance, the amount of tax
benefits available for the aircraft industry in 2013 decreased by more than 50%, as compared to
2012). The total amount of tax benefits, determined as budget income losses is presented in Table
29.
115
Table 29: Ratio of tax benefits for aircraft and shipbuilding industries presented as the budget
revenues foregone and the total amount of budget losses during 2010 – 2013
Indicator
2010
2011
2012
Aircraft Construction industry (ratio in the total amount of benefits, in per cent)
Benefits in corporate income tax
2013
27.83
24.63
15.67
43.38
30.49
16.62
0.32
0.04
0.27
Share of aircraft industry’s benefits in total budget
0.57
2.00
2.83
losses (except for 11020255, 11020284, 11020025 )
Shipbuilding industry (ratio in the total amount of benefits, in per cent)
0.06
1.58
Benefits in corporate income tax
n/a
Benefits in land tax
10.67
Benefits in VAT
-
0.24
0.12
3.01
9.26
4.86
0.10
0.33
Benefits in land tax
-
4.50
Share of shipbuilding industry’s benefits in total budget
losses (except for 11020255, 11020284, 11020025 ,) )
-
0.04
For reference (benefits calculated as budget losses, UAH million.)
Benefits in corporate income tax, including:



amount of transfer of negative value of the
object of taxation to the future period
(11020255)
amount of negative financial results from
operations with securities (11020284)
amount of income not subject to taxation in
accordance with international treaties of
Ukraine (11020025)
2,097.5
15,409.6
15,108.8
5,533.2
-
9,425.6
4,547.6
-
-
-
3,816.7
-
1605,4
3085,6
3274,6
3062,1
2,898,4
3,469,9
2,471,1
254.7
41,375.7
359.2
30,271.4
671.1
26,204.3
46,655.4
37,020,2
32,568.8
Benefits in corporate income tax (except for 11020255,
492,1
11020284, 11020025
Exemption from land tax
886.7
Exemption from VAT
34,039.6
Total tax benefits calculated as losses to budget
35,522.0
revenues (except for 11020255, 11020284, 11020025
)
Source: calculations by authors based on the data from fiscal bodies.
Table 29 shows that the proportion of tax benefits is higher in the aircraft construction industry
than similar tax benefits established for the shipbuilding industry. The largest share of benefits in
both sectors was received in the form of exemption from the land tax, followed by the lower rates
of the corporate income tax. It should be noted, however, that these indicators for 2013 have
decreased, compared to the respective figures for 2012. In particular, the proportion of land tax
benefits received by the aircraft industry in the total amount of land tax benefits was 16.62% in
2013 and 30.49% in 2012. A similar trend can be observed with respect to the corporate income tax
benefits where, for the aircraft industry, these amounted to 15,67 % of total corporate income tax
benefits in 2013, while in the previous year this indicator was at the level of 24,63 %.
116
Aircraft construction enterprises, in accordance with the Customs Code of Ukraine, also enjoyed
preferences in the form of exemption from import duties (Table 30).
Table 30: Import Duty Exemptions for Aircraft Construction Enterprises
2010 to 2014 , UAH million
Exemption
2010
2011
2012
3,645.5
4,515.7
3,848.1
Goods imported by aircraft construction
enterprises defined in Article 2 of the Law of
Ukraine "On the Development of the Aircraft
Industry" under the regime of import (re-import)
and according to the list referred to in paragraph
4(2) of the Final and Transitional Provisions of
the Customs Code of Ukraine
8.96
13.10
10.07
Ratio of the exempted import duties by aircraft
construction industry to the total amount of
import duties, in per cent
0.25
0.29
0.26
Total
2013
2014
3818.6
3896,2
6.2
5.6
0.17
0.13
Source: based on the data of the fiscal bodies.
The State also provides direct support to undertakings in the aircraft and shipbuilding sectors in the
form of direct subsidies from the State budget to compensate local budgets for their losses in land
tax payments by such enterprises. Since the revenues from the land tax are included into local
budgets, the Government has to compensate the local budgets at the level of the foregone revenue
from land tax (Table 31).
Table 31: Subsidies from State budget to local budgets, UAH million
Subsidies
Additional subsidies from the State budget to local budgets to
compensate for losses due to land tax reliefs provided to spacecraft-,
aircraft -, and shipbuilding enterprises and film producers
2011
2012
2013
125.4
125.1
147.9
Source: Compiled by the author according to Appendix 7 of the Laws of Ukraine «On State Budget of Ukraine»
for the respective year.
To evaluate the efficiency of the benefits provided to these sectors of the national economy,
certain indicators of activity of aircraft and shipbuilding enterprises have been analysed in
comparison with the general economic indicators for Ukraine (Table 32).
117
Тable 32: Economic indicators for aircraft and shipbuilding sectors 2012 – 2013, UAH million
The volume of Prime costs of Financial results Financial results
Balance
sales
the products
of profitable
of loss-making
(profit-loss)
sold
entities
entities
Total for the
2012 3,286,744.3
2,883,142.4
181,689.4
119,884.5
61,804.9
economy
2013 3,184,123.8
2,781,740.5
142,654.1
140,518.7
2,135.4
Total for the aircraft 2012
19,852.4
13,729.0
3,607.2
342.2
3,265.0
construction sector,
2013
20,045.2
13,814.2
1,959.9
686.8
1,273.1
including:
30.30
2012
13,365.7
8,740.5
3,203.6
233.4
2,970.2
Production of aircraft
and spacecraft,
2013
13,323.0
8,374.6
1,647.2
538.0
1,109.2
equipment
72.19 - R&D activities 2012
6,486.7
4,988.5
403.6
108.8
294.8
in natural sciences
and engineering in
2013
6,722.3
5,439.7
312.7
148.8
163.9
general
Total for the
2012
1,568.0
1,467.9
49.3
219.4
-170.1
shipbuilding sector
2013
2,651.9
2,174.3
139.2
292.9
-153.8
including:
30.11- Construction 2012
944.1
989.2
39.0
201.8
-162.9
of ships and floating
2013
1,881.8
1,555.6
130.2
267.6
-137.4
vessels
33.15 - Repair and
2012
624.0
478.7
10.3
17.5
-7.2
technical
maintenance of ships 2013
770.1
618.7
9.0
25.3
-16.3
and boats
Ratio of the aircraft 2012
0.60
0.48
1.99
0.29
5.28
industry in the total
economic
2013
0.63
0.50
1.37
0.49
59.62
performance, in per
cent
Ratio of shipbuilding 2012
0.05
0.05
0.03
0.18
-0.28
industry in total
economic
2013
0.08
0.08
0.10
0.21
-7.20
performance (%)
Source: Prepared according to the statistical observation
reports on Accounting Form №2 "Financial Results Report" based on survey of large enterprises
Year
A comparison of these indicators suggests the insignificant contribution of these sectors to the
economy. It should be noted that, globally, aircraft and shipbuilding industries are going through a
prolonged recession period and have not resumed their growth after the global financial crisis of
2008/2009. Thus, these sectors demonstrate a low-income ratio in comparison to the overall
economic structure:
-
Aircraft construction industry - net income from sales in 2013, was 0.63% of the total net income
of the national economy, while in 2012 it was 0.60%;
-
Shipbuilding industry - net income from sales in 2013 was 0.08% of the total net income of the
national economy, while in 2012 it was 0.05%.
Budget support in the form of a lower rate of corporate income tax for the aircraft industry in 2012
amounted to 757.5 million UAH, whereas in 2013 this form of public support amounted to a lower
118
figure of 372.4 million UAH. The corresponding figures for the shipbuilding industry were
10.3million UAH in 2012 and 26.4 million UAH in 2013.
These amounts were assessed as budget revenue foregone from tax benefits provided to the
aircraft industry in the amount of 1,046.76 million UAH in 2012 and 513.5 million UAH in 2013. For
the shipbuilding industry, the corresponding figures were assessed at the level of 37.42 million UAH
in 2012 and 106.89 million UAH in 2013.
It should be noted that the financial results of the loss-making enterprises in the shipbuilding
industry are significantly worse than relevant data for profitable enterprises in this sector (4.5 times
in 2012, and 2 times in 2013). This indicates that the existing system of State support, together with
and/or other economic factors in the shipbuilding industry, is not efficient. With low domestic and
foreign demand for the products of this sector, tax benefits and other State support measures
cannot change the situation or boost economic growth. In other words, the basic aim of State
support (mainly in the form of tax benefits) to intensify the development of this priority sector has
not been achieved.
Effective support measures should lead to a measurable effect such as, for instance, a significant
increase in output, higher profit margins, cost-effectiveness in the industry, growth in exports,
higher employment rates, etc. However, tax benefits introduced by the State might have caused
certain (although insignificant - at the level of 0.06% of GDP) fluctuations in total budget revenues,
created a more heterogeneous economic environment and undesirable diversity and fragmentation
of fiscal conditions. In some cases, tax benefits might have become a basis for creating so called
“shadow” economies through the avoidance or minimisation of tax liabilities by undertakings.
Given the wide scope of the shadow economy in Ukraine and the general tendency to evade
taxation, any tax relief measures should be considered as a combination of a stimulating effect but
also as a risk that tax revenues may further decrease due to tax evasion.
5.4. Support to Civil Aviation
5.4.1. Overview of civil aviation sector
In the modern globalised world, air transportation services are one of the most promising and
dynamic markets. According to the International Civil Aviation Organisation (ICAO), the overall
global demand for air transportation in the period 2012 to 2023 will increase on average by 4-5%
annually61. In this context, the Ukrainian air transportation market has a high potential for growth
due to the country’s large territory (the 2nd largest in Europe after the Russian Federation), a
population of over 45 million, fast urbanisation, a number of big cities and an advantageous
geographic location at the crossroads between Europe and Asia. According to certain forecasts, the
air transportation market in Ukraine may account for 20.1 million passengers in 2015 and up to
38.8 million by 202362, which is 2.5 and 4.8 times respectively more than in 2013.
In 2013 domestic airlines carried 8.1 million passengers (approximately the same number as in
2012). More specifically, 6.9 million passengers used international routes (1.1% more than in 2012)
and 1.2 million passengers used domestic routes (5.9% less than in 2012). In 2013, 99.2 thousand
tonnes of mail and goods were transported, compared to 122.6 thousand tonnes in 2012. The share
of cargo transportation by air in the total volume of cargo transportation in Ukraine is less than
0.1%, due to a lack of demand. Most of the cargoes are carried by charter flights to other countries
61
Resolution of the Cabinet of Ministers No. 944 of 30 October 2013 «On approval of the Concept for the
State programme concerning the development of airports for the period until 2023”.
62
Resolution by the Cabinet of Ministers of Ukraine No. 944 of 30 October 2013.
119
as part of humanitarian aid and peacekeeping programmes of the UN, as well as under contracts
with some other categories of customers.
Ukraine’s eight largest airports - Boryspil-Kyiv (52%), Dnepropetrovsk (3%), Donetsk, Kyiv (Zhuliany)
(n/a), Lvov (5% per cent), Odessa (7%), Simferopol (8%), and Kharkov (4%) accommodated about
98% of the total passenger traffic on domestic and foreign air carriers operating in Ukraine in
201363.
There were 33 domestic carriers operating in the passenger air transportation market in 2013.
According to the reports of the Ukrainian Aviation Service, the largest share of total passenger
turnover belonged to Ukrainian International Airlines (UIA) - its share grew by 69.5% compared to
2012. WizzAir Ukraine has also increased its share by 58.1 per cent and Utair-Ukraine by 220% (The
airline “Windrose” was an exception, having lost 15.6% of its market share)64.
5.4.2. Legal framework and State Policy
The legal framework for civil aviation services in Ukraine includes a new version of the Air Code, the
Laws of Ukraine “On Natural Monopolies”, “On Transport”, “On Licensing of Certain Types of
Economic Activities”, etc. An important feature of current State policy for this sector is legal
approximation to current international standards, primarily, those applied by the EU, the
International Civil Aviation Organisation (ICAO), the European Civil Aviation Conference (ECAC) and
the European Organisation for the Safety of Navigation (EUROCONTROL).
From 2012 to 2013, a number of important regulatory acts were adopted for that purpose, namely:
Quality standards (both for international and domestic flights) for passenger services, calculation of
amounts and procedure for compensation of damages due to a refusal to take a passenger on
board or for cancellation or delay of a flight, for downgrading the passenger service class, payment
of a refund in the case of failure to provide air transportation service in accordance with EU
requirements65 and amounts of compensation for damage arising from the transportation of
passengers, luggage, cargo and mail in accordance with the provisions of international agreements
signed by Ukraine’s (e.g. the Montreal Convention)66.
A single mechanism has been established to issue permits for operating specific air routes, as well
as clear requirements for operations on these routes and possible restrictions of a carrier’s rights
where it fails to perform its licence obligations. A new procedure for granting and the annulment of
the right to use particular air routes67 was also adopted to ensure a more effective use of air routes.
At present, Ukrainian air carriers are significantly expanding the geographic scope of their
destinations. They also fly to US cities without limitations, following the granting of First Category
Safety to Ukraine by the FAA (the US Federal Aviation Administration) on 19 September 2013. This
63
Results of the Ukrainian aviation sector performance in 2013. State Aviation Service [Web resource] :http://avia.gov.ua/news/novyny/news_avia/24252.html.
64
The conclusions of the activities of aviation industry of Ukraine for 2013. State Aviation Service of Ukraine.
[Web resource] - Access:http://avia.gov.ua/news/novyny/news_avia/24252.html.
65
Regulation (EC) No. 261/2004 of the European Parliament and of the Council of 11 February 2004.
66
Order of the Ministry of Infrastructure No. 735 of 30 November 2012 «On approval of Rules for air
transportation of passangers and cargoes » [Web resource] - http://zakon2.rada.gov.ua/laws/show/z221912.
67
Order of the Ministry of Infrastructure No. 245 of 23 April 2013 р. «On approval of Procedure for granting
and anulment of rights to use air routes » [Web resource]: zakon1.rada.gov.ua/laws/show/z0765-13.
120
decision was based on the results of a safety audit that confirmed the compliance of the State
Aviation Service of Ukraine with all standards established by the International Civil Aviation
Organisation (ICAO). The US Federal Aviation Administration acknowledged Ukraine’s substantial
progress in flight safety and the transparency of aviation sector management68.
The establishment of a common airspace (CAS) with the EU is likely to produce a considerable
effect on Ukraine’s civil aviation market in the near future.
At the same time, the Ukrainian civil aviation market is characterised by weak competition, as
evidenced by the exit from the market of "Aerosvit". As a result, UIA increased its market share by
64% which amounted to 4.6 million passengers in 2013. This undertaking currently holds a
dominant position on the Ukrainian civil aviation market: its share of the total number of
passengers exceeds 56% and it operates the most profitable and popular air-routes. UIA is a
member of the International Air Transport Association (IATA) and the Association of European
Airlines (AEA).
The largest Ukrainian airlines have fleets consisting on average of 20 aircrafts, while large European
companies operate an average of 300-400 aircraft. The average depreciation of aircraft owned by
Ukrainian carriers is higher than 70%, which means that the average term of use is more than 22
years.
Ukraine does not have any legal mechanisms for protecting national carriers from international
competition, nor does it have any particular State policy for the development of civil aviation. In
contrast to Ukraine, for example, Russia adopted its “Civil Aviation” sub-programme under the
Federal Programme “Development of Russia’s Transport System (2010 to 2020)”69 and Kazakhstan
adopted a “Plan of Comprehensive Measures for Protecting the Civil Aviation Sector of the Republic
of Kazakhstan for 2013 to 2015”70. Nonetheless, the Ukrainian Government adopted some
programmes that partially addressed the development of Ukrainian airports with financing through
the State budget71:

State programme for the development of infrastructure for sports and tourism in Ukraine
from 2011 to 2022, approved by the Decree of the Cabinet of Ministers of Ukraine No. 707
of 29 June 2011 (Official Bulletin of Ukraine 2011, No. 51, p. 2039);

State programme for facilitating economic development from 2013 to 2014, approved by
the Decree of the Cabinet of Ministers of Ukraine No. 187 of 27 February 2013 (Official
Bulletin of Ukraine 2013, No.24, p. 807);

State programme for the preparation and hosting of the Finals of the European Basketball
Championship 2015 in Ukraine, approved by the Decree of the Cabinet of Ministers of
Ukraine No. 793 of 2 October 2013 (Official Bulletin of Ukraine 2013, No. 86, p. 3186).
In summary, the Ukrainian civil aviation sector is currently characterised by the dominance of the
largest carrier, low competition and a lack of financial resources for the development of national
68
The FAA turned Ukraine to Category I on safety criteria [Web resource:
http://ua.interfax.com.ua/news/general/167877.html.
69
Resolution of the Government of the Russian Federation of 5 December 2001. № 848 «On federal
programme of «Development of transport system of Russia (2010-2020 )» [Web resource] - Access:
http://docs.cntd.ru/document/901807416.
70
Decree of the Prime Minister of the Republic of Khazahstan of 10 January 2013, 1-р «On the adoption of
the Action plan of the development of the sector of civil aviation for the period of 2013–2015».[Web
resource]: http://www.nomad.su/?a=3-201301310024.
71
Resolution of the Cabinet of Ministers of Ukraine of 30 October 2013 № 944 «On the approval of the
Concept of State programme of the development of airports for the period until 2023».
121
airlines. The domestic carriers and airports are not fully prepared to work under the “Open Skies”
conditions.
In order to ensure effective implementation of public policy in the field of civil aviation and to
establish a central executive body, the President of Ukraine issued a Decree “On the approval of
Regulations for the State Aviation Service of Ukraine” No. 398/2011 of 6 April 2011. The main
objectives of the Regulation include:
 Submission of proposals to the Government on public policy for civil aviation and the use of
airspace;
 Implementation of the State policy for civil aviation and the use of airspace;
 Public control and supervision of civil aviation safety;
 Preparation of a legal framework for the civil aviation sector;
 Certification and registration of undertakings and assets in the civil aviation sector, and the
licensing of air transport service providers;
 Regulation of airspace and air traffic management;
 Organisation of the air transport sector;
 Promotion of foreign economic activities in the sector;
 International litigation related to civil aviation sphere.
The scope of budget financing of the State Aviation Service’s activities in 2011 to 2013 is shown in
Table 33.
122
Table 33. Budget financing of the State Aviation Service of Ukraine in 2011-2013, UAH million
Budget
classification code
Programme Title
2011
2012
2013
3108000
Operational need of the State Aviation
355.1
76.1
73.0
Administration of Ukraine
3108010
Administration and management in the aviation
51.8
67.2
65.8
sector
3108020
Medical service and certification of flight dispatcher
service personnel in air transport, provision of 7.0
8.9
7.2
primary medical aid to passengers
3108030
Pre-flight and flight-control of dispatcher service
personnel in air transport and provision of primary 1.3
medical aid to passengers
3108050
Acquisitions of aircrafts
295.0
Source: Reports on the state budget expenditures by program classification // State Treasury Service of
Ukraine [web resource]. – Access : http://www.treasury.gov.ua/main/uk/doccatalog/list?currDir=146477
The Table demonstrates that budget funding of the State Aviation Service of Ukraine decreased in
recent years from 355.1 million UAH in 2011 to 73.0 million UAH in 2013. In particular, the
financing of aircraft acquisition, pre-flight control of dispatcher service personnel and primary
medical aid to passengers was reduced.
From 2009 to 2013, public support for the aircraft construction industry was regulated by two laws:
1. The Law of Ukraine “On the State programme for the development of the An-70 military
transport aircraft and its purchase through State orders for defence supplies” No. 1462-IV of 5
February 2004. The purpose of this Law is to strengthen the safety of civil and military aviation
in Ukraine and to ensure the competitiveness of domestically produced aircrafts, aircraft
engines and other aviation equipment. The programme is designed for the period of 2004 to
2022.
The budget funding for activities within this programme was allocated under the titles
“Purchasing and upgrading of weapon and military equipment for the Armed Forces of
Ukraine”, as well as “Applied research in the field of military defence of the State”. In 2010, the
relevant financing amounted up to 41 million UAH and in 2011 this rose to 271.8 million UAH.
Since 2012 there was no further budget support allocated to this programme.
2. The Law of Ukraine “On amendments to the Law of Ukraine “On the development of the aircraft
industry” No. 4884-VI of 5 June 2012, related to State support for sales of domestically
produced aviation equipment. This Law introduced a partial reimbursement of interest charged
by commercial banks on loans denominated in the national currency to undertakings
purchasing such equipment.
Key industrial indicators for the “passenger air transportation” sector for 2010 to 2013 are shown
below in Table 34. The financial performance of the passenger air transport sector is shown in Table
35.
123
Table 34. Key Indicators for passenger air transportation in Ukraine 2010 to 2013
Indicator
2010
2011
2012
2013
Number of business entities in the sector
102
86
80
95
Number of employed workers (thousands).
23
24
10.2
8
Volume of goods (services) produced:
- Institutional dimension, UAH million
12,466.3
16,747.2
14,692.3
10,915.5
- Functional dimension, UAH million
11,929.4
15,234.6
14,795.0
10,691.2
- Output by enterprises, UAH million
15,503.8
11,158.3
-Value added to the cost of production, UAH
6,251.6
3,840.1
million
Source: Statistical Yearbook ‘Activities of Economic Entities – 2013”/ State Statistics Service of Ukraine, 2014.
- 447 p.
Table 35: Financial performance of the passenger air transport sector 2010 to 2013
Indicator
2010
2011
2012
2013
Cost of labour, UAH million
1,481.1
2,046.5
1,546.4
1,402.6
Profit/loss before tax (balance sheets), UAH
million
–888.6
–2,073.1 –1,480.6
–1,436.3
Net profit (loss) of companies (balance), UAH
million
–1,053.3 –2,226.2 –1,523.0
–1,412.5
Rate of return (loss) of operating companies, in
%
–4.6
–7.8
–8.4
–8.8
Rate of return (loss) of all companies, in%
–6.3
–10.0
–8.3
–10.9
Assets (as of the end of year), UAH million:
Total assets
Current assets
Non-current assets and disposal groups
Liabilities (as of the end of year), UAH million:
Equity
Long-term commitments and collateral
Current liabilities and collateral
Liabilities associated with non-current assets and
disposal groups and the net value of private
pension fund
Balance (as of the end of year), UAH million
Receivables (as of the end of year), UAH million
Accounts payable (as of the end of year), UAH
million
2,213.2
2,166.0
0.0
2,137.7
1,869.1
0.2
–5,786.8
2,163.4
7,995.2
–7,212.1
1,682.5
9,536.6
7.4
4,379.2
1,620.2
0.0
4,007
1,436.5
5,926.5
7,935.8
Source: Statistical Yearbook ‘Activities of Economic Entities – 2013”/ State Statistics Service of Ukraine, 2014.
- 447 p.
124
Information about State capital investments in this sector is confidential, pursuant to the Law of
Ukraine "On Public Statistics". Accordingly, data concerning these amounts are not available in
statistical digests (Table 36).
Table 36: Capital Investment in Passenger Air Transport Sector
Indicator
2010
2011
2012
Capital investment in UAH thousands
21,875
31,313
228,710
as % of total capital investment
0.0
0.0
0.1
including State budget funds
n.a.
-
2013
335,284
0.1
n.a.
Source: Statistical yearbook "Capital investments in Ukraine, 2013"/State Statistics Service of Ukraine, 2014. 43 p.
.
State support measures granted to this sector in recent years related mostly to tax benefits. From
2011 to 2013, a zero VAT rate was applied to supplies of aircraft refuelling equipment and other
goods for international flights, as well as goods for navigation purposes or the transportation of
passengers or cargoes. A zero VAT rate was also established for the provision of services to
passengers on international flights, services for the transport of luggage and cargo by air transport
(as well as for rail, road, sea, and river transports) and finally also to services provided to aircraft
performing international flights.
The Cabinet of Ministers of Ukraine more recently (by Resolution No. 944 of 30 October 2013)
approved the concept for a State programme for the development of airports until 202372. The
programme is aimed at ensuring the sustainable development of the aviation industry, upgrading
air transport infrastructure to international standards, ensuring that Ukraine takes a position of a
developed transit country, using its unique geographic location and improving the management of
State property.
In order to ensure the implementation of a comprehensive national strategy for the development
of civil aviation and the infrastructure of airports (and to introduce various forms of effective
management and improve the certification and licensing system), it has been proposed to set out
clear objectives and a long-term roadmap for the development of Ukrainian airports until 2023. The
implementation of such a strategic plan will create the necessary conditions for modernisation of
the aviation industry and produce a positive effect on regional development. It was planned that
specific investment objects will be determined for construction and reconstruction and for other
modernisation measures. These efforts are to be coordinated with tasks and activities performed
under the Economic Development Programme for 2013 to 2014, the State Programme for the
development of infrastructure for sports and tourism in Ukraine for the period of 2011 to 2022 and
the National programme for the preparation and hosting of the Finals of the European Basketball
Championship 2015 in Ukraine.
The total volume of financing for airport infrastructure development in the period to 2023 is
foreseen as more than 15.3 billion UAH. Of this, 11.2 billion UAH from various sources are to be
invested in the modernisation of runways and other airport facilities. Some financing is intended to
be attracted through the provision of State guarantees, granted in accordance with the Law on the
State Budget of Ukraine for the relevant year. About 4.1 billion UAH for the development of airport
infrastructure has already been provided by private investors.
72
Resolution of the Cabinet of Ministers “On the approval of the Concept of State Programme of the
development of airports for the period until 2023” No. 944 of 30 October 2013.
125
Ukraine has already experience in providing State support for the development of airports within
the State Programme for the preparation and hosting of the 2012 European Football Championship
Finals in Ukraine73. Under that programme, implemented from 2008 to 2012, a large scope of works
was performed in four Ukrainian cities: Kyiv, Lvov, Kharkov, and Donetsk. The funding needed for
works from 2008 to 2012 is given below in Table 37.
Table 37: Estimation of financing needed for design, construction, reconstruction and repairs at
the Ukrainian airports, UAH million
Source
Financing
of
Total
2008
2009
2010
2011
2012
All sources
22,593.44
1,227.99
1,131.76
4,588.52
8,446.74
7,198.43
State budget
14,865.26
1,081.1
246.24
3,379.83
5,841.35
4,316.74
Local
governments
185.08
36.41
40.04
14.81
93.82
-
Other sources
7,543.1
110.48
845.48
1,193.88
2,511.57
2,881.69
Source: On approval of the State Programme for preparation and hosting of the 2012 European Football
Championship finals in Ukraine: Cabinet of Ministers of Ukraine dated April 14, 2010 N 357 [Web resource]. -:
http://zakon4.rada.gov.ua/laws/show/357-2010-%D0%BF.
The actual amounts of savings to the civil aviation services of the zero Vat Rate benefit are shown in
Table 38.
Table 38: Consolidated indicators on tax benefits ("Zero" VAT rate) provided for civil aviation
in 2011 to 2013, UAH million
Benefit
code
14010396
Tax Code
Benefit
Subparagraph
195.1.2 art.195
section V
Zero VAT rate is applied to
transactions on supply of goods for
aircraft refuelling or supplies for:
- aircrafts performing international
flights for navigation purposes or paid
transportation of passengers or cargo;
- aircrafts that belong to the Air Forces
of Ukraine and going beyond the
boundaries of Ukraine, including
temporary deployment
Zero VAT rate is applied to
transactions on provision of services
for international passenger, luggage
and cargo transportations by rail,
road, sea, river and air transport;
Zero VAT rate is applied to
transactions on servicing aircrafts
performing international flights.
14010400
Subparagraph.
195.1.3
par.195.1
art.195 section
V
14010402
Subparagraph
195.1.3
par.195.1
art.195,
section V
2011
The amount of the VAT benefits
Including the amount of benefits for
international air transportations
73
182.08
2012
103.82
84.4
4,832.81
258.3
2013
59.39
49.8
5,863.49
5,888.62
234.53
280.2
235.52
264.57
599.13
6,153.19
549.89
Resolution of the Cabinet of Ministers “On the approval of State programme for the preparation of the final
of the European Football Championship 2012” No. 357 of 14 April 2010.
126
Source: According to the State Fiscal Service of Ukraine.
A detailed overview of the legal framework of rules, regulations and procedures for the civil
aviation sector, with aspects of State support, is given in Annex 8.
5.5. Support to Culture and Sports Activities
5.5.1. Overview of Legal and Institutional Framework for Support of Cultural Activities
This section reviews State support measures directed at a number of economic activities that have
been or still are funded directly through State and/or local budgets: Networks of institutions
promoting culture (theatres, libraries, art schools, concert halls, etc.), the film industry,
infrastructure for the protection of national historic and cultural heritage (special regime
territories), production and broadcasting of TV and radio programmes, book publishing and sports.
Two of the listed economic activities – film making and book publishing – receive State support in
the form of tax benefits.
The amount of budget revenue foregone due to tax benefits can be obtained from the State Fiscal
Service. In some cases, a list of beneficiaries (for instance, land tax exemption) is approved by the
Cabinet of Ministers of Ukraine and officially published.
In terms of the expectations of persons employed in these spheres, the management of various
institutions, it is the general opinion of politicians and civil servants that publicly owned
'establishments of culture' (this expression is used in the Ukrainian legislation) require State
financing for most of their operational and capital expenses. In this context, 'State' means the
central Government, regional councils and State administrations, as well as local self-governance
bodies. Expenses in these fields amount to 10 billion UAH per year approximately and represent
only 2.5% of the consolidated State budget. In comparison, this is less than the annual State
support to the coal mining sector, which amounted to 13.3 billion UAH in 2013.
The sources of legal and statistical information used for this analysis (legislative acts and lists of
undertakings as beneficiaries financed though State budgets) were obtained from the websites of
the Ministry of Culture and the State Committee for Television and Radio. Obtaining information
from the Ministry of Youth and Sport was somewhat more difficult.
Aggregated data on local budget support can be found at the State treasury website. These figures
are presented below within the discussion of the relevant fields of culture and sports.
A typical budget support scheme includes the following elements:
 A special provision within a law of Ukraine, envisaging State support to economic activities
in broader or specific terms;
 A line (a programme) in the law on State budget for a particular year, which establishes a
specific volume of financing for the implementation of relevant legal provisions;
 A procedure for the disbursement of the funds, allocated under a particular budget
programme, or several programmes approved by the Cabinet of Ministers of Ukraine.
In Ukraine, there are some 20,000 public libraries, 18,000 public clubs, 600 museums and more
than 130 theatres74. At least 50% of public libraries and 90% of clubhouses are located in rural
areas. There are also 900 music schools for children, 670 art schools and 10 schools of
choreography75. These entities are financed either directly from the State or from local budgets.
74
http://ukrstat.gov.ua/operativ/operativ2012/cltr_rik/cltr_u/cltr_u.html.
75
http://ukrstat.gov.ua/operativ/operativ2012/cltr_rik/cltr_u/shkev_u.html.
127
The majority of local cultural establishments are financed through local budgets. At the same time,
there are private circuses and theatres that normally function without any public support.
The main part of State support to promote and develop culture and to protect the historic heritage
of Ukraine is provided through the Ministry of Culture and Arts of Ukraine. However, some minor
amounts for the same purpose can also be found in the budgets of other Ministries and public
institutions. For example, the State Department of Property Management (within the Presidential
Administration) has specific funds to finance some musical ensembles and the National Museum
‘Art Arsenal’. The State Committee for Television and Radio finances orchestras of the national
radio company and some other music groups.
Up to 2010, the legal basis for State support to culture was established in the Law of Ukraine “On
Fundamentals of Legislation on Culture No. 2117-XII of 14 February 199276. That Law contained only
brief and general provisions concerning the mechanisms for financing cultural establishments via
specific funds for cultural development and by granting tax exemptions. The main provisions were
the following:

Article 23 provided that cultural activities should be financed by the State, by local budgets, by
undertakings, civil organisations and through other sources. While the State should have
channelled at least 8 per cent of gross national income to finance culture, this benchmark has
never been achieved.

Article 24 required the establishment of funds for the cultural development, but without
specifying sources of financing and distribution procedures of those funds.

Article 26 contained a general tax exemption for cultural unions and associations, cultural
funds, and other cultural establishments. Later, it was acknowledged that such provision would
contradict general tax principles, fixed in the tax legislation. Also, other benefits for
undertakings of all sectors of the economy in exchange for their financial support to culture
were of a very general nature.
More specifically, the Law of Ukraine “On Culture”77 provides some fundamental provisions for
public support in the sector of culture. Article 3 of this Law (“Fundamentals of Public Policy in the
Sphere of Culture”) includes, inter alia, the following policy principles:

Protection and conservation of cultural heritage;

Promotion of investment in the sphere of culture, provision of commercial services;

Promotion of trade unions and civil society organisations in the sphere of culture;

Ensuring the functioning of networks of special cultural and educational establishments;

Support of activities related to the manufacturing and distribution of electronic media and
printed matter, audio and visual products and the development of computer technologies to
widen public access to culture;

Support to local (national) producers in the sphere of culture.
Article 14 of this Law (“Support to local (national) producers in the sphere of culture”) contains two
provisions concerning the scope of public support that can be provided in general through:

76
77
a favourable tax regime and financial support to the production and distribution of books, films
and other cultural products in the Ukrainian language, both in Ukraine and abroad;
Law of Ukraine “On Fundamentals of Legislation on Culture” No. 2117-XII of 14 February 1992.
Law of Ukraine “On Culture” No. 2778-VI of 14 December 2010.
128

establishing compulsory quotas for TV, radio, cinema and video networks on the demonstration
and distribution of cultural products in the Ukrainian language.
Article 18 of this law (“Support to artistic amateurism and the organisation of public leisure”)
provides that executive authorities and bodies of local self-governance shall create a basic network
of cultural establishments (clubs, cultural centres, recreation parks, folklore centres, etc.) and
provide required financial support. A basic network of cultural establishments is defined in Article 1
of the Law as a cluster of undertakings, establishments and organisations of culture, owned by the
State or by local communities (so called “communal property”). According to Article 9 of the Law,
such establishments may be created by:

central and local executive authorities;

bodies of local self-governance;

professional unions, civil organisations and associations in sphere of culture.
Table 39 below provides an overview of the legal basis for budget support to undertakings and
institutions in the spheres of culture and sports:
Table 39: Overview of legal provision on State support for culture and sports
No
1
Law of Ukraine
On Culture
2
On Theatres
3
On Libraries and Librarians
4
On Protection of Cultural
Heritage
5
On Protection of Archaeological
Heritage
On Cinematography (Movie
Industry)
On Publishing Industry
On Physical Culture and Sport
6
7
8
Specific provisions on budget support
Article 3: “Fundamentals of public policy in the sphere of culture”
Article 14: “Support to local (national) production activities in the sphere of
culture”
Article 18: “Support for artistic amateurism and organisation of leisure
events for citizens”
Article 26: “Allowances for cultural establishments”
Article 27 “Additional financial support to activities in the sector of culture”
Article 3: “Public policy on theatres”
Article 14: “Financing of theatres”
Article 16: “Material and technical base”
Article 4: “Public policy on libraries”
Article 26 “Financing of libraries”
Article 38: “Sources of Financing of Protection of Cultural Heritage”
Article 40: “Special funds of Financing of Protection of Cultural Heritage”
Article 41: “Use of “Special funds for the Financing of Protection of Cultural
Heritage”
Article 20
Articles18-21
Article 26-1
Article 47 “Financing in the Sphere of Physical Culture and Sport”
Table 40 below provides an overview of selected budget programmes (codes are included) in the
spheres of culture and sports for the period of 2008 to 2013, approved by the Property
Management Department of the Presidential Administration, the Ministry of Culture and Arts and
the Ministry of Youth and Sports.
129
Table 40: Selected Budget Programmes in the Spheres of Culture and Sports, in UAH million
Budget
Code
0301430
0301360
1801100
1801030
1801040
1801050
1801060
1801070
1801110
1801120
1801190
1802030
1802040
1801300
1806030
3401090
3401220
3401240
3401250
3401280
3401310
3401320
3401330
3401400
3404020
3404030
3404040
Public Authority/ Institution
State Administrative Department
Establishment of cultural, art and museum complex
“Art Arsenal”
Financial support to the National Chamber Orchestra
“Kyiv Soloists”;
Ministry of Culture and Arts
Financial support to national artistic unions in sphere of
culture and arts. Activities of All-Ukrainian Society
“Prosvita”
Provision of general and special education by general
and extracurricular art schools, methodological support
to schools
Provision of general and special education by
specialized boarding schools
Training of cadres for choreography art by high schools
of I and II levels of accreditation
Training of managers in the sphere of culture and arts
by higher education establishments of ІІІ and IV levels
of accreditation
Training and re-training in sphere of culture and arts by
State Academy of Management Personnel in Culture
and Arts
Financial support to the national theatres
Financial support to the national artistic institutions,
concert and circus organisations
Libraries and museums, exhibitions, cultural and
informational activities
Preservation of historical and cultural heritage in
reserved territories
Protection of cultural heritage, issuing passports,
inventory and restoration of objects of cultural heritage
Financial support of printing periodicals on cultural
research, newspapers in national minorities' languages,
financial support to tours of Ukrainian artists
Production and distribution of national films, financial
support to State-owned enterprise “National Oleksandr
Dovzhenko Centre”
Ministry of Youth and Sports
Financial support to the Sport Committee of Ukraine
Financial support to highest sport achievements
Support to training of sportsmen of high categories
Establishment and development of a material-technical
basis for highest sport achievements
Financial support to civil organisations of physical
culture and sports
Support to training camps and competitions of Olympic
sports
Preparation and participation of national teams in the
Olympics
Activities on non-Olympic sports and mass activities of
physical culture
Financial support to National Olympics Committee of
Ukraine
Physical, sport rehabilitation and sport for people with
disabilities
Preparation and participation of national teams in
Paralympics and Deaflympics games
Financial support to Paralympics movement of Ukraine
130
2008
2009
2010
2011
110.1
3.3
5.1
7. 5
8.7
6.8
9.7
8.4
2012
2013
16.2
16.5
12.8
9.94
71.9
84
34
36.7
46.2
50
4.6
7.3
9.5
17.5
37
38.6
217.3
384.8
455.1
499.6
557.7
569.5
23
25.7
29.4
33.8
35.7
34.3
209.8
304.6
345.7
390.6
158.5
220.5
241
257.2
313.4
348.18
270.5
322.1
316.37
254.6
257.8
7.7
9.54
141.4
137
641.9
513
74.5
76.3
70.6
20.2
100.4
101.8
131.3
196.3
1.3
330.4
2.8
3
5.2
4.3
6.3
5.8
486.7
558.3
2.9
156.7
5.4
2.3
139.1
4.6
3.3
157.8
6
3.7
173.8
6.4
198.8
1.6
1.3
7.5
16.3
15.5
24.2
20.9
137.2
131.5
168.7
191.6
37.8
19.9
6.1
17.2
16.1
19.2
18.8
14.2
16.5
18.4
56
52.8
66.2
81.8
102.5
124.4
148.9
79.8
134.6
23.3
588.4
105.6
158
12.3
12.3
11.8
23.9
The total aggregate public spending on Culture, Sports and Mass Media activities from 2008 to
2013 is shown in Annex 9. A comparison of the nominal expenses during this period shows that
budget support to mass media, taken as consolidated yearly expenses, remained practically
unchanged at the level of about 1 billion UAH annually. In the sector of sports the nominal amounts
have increased from about 2 billion UAH in 2008 to almost 4 billion UAH in 2013. In the sector of
culture, budget support has been the highest, increasing from 4.8 billion UAH in 2008 to 8.4 billion
UAH in 2013.
5.5.2. Support of cultural establishments and production of goods for cultural activities
The Resolution of the Cabinet of Ministers of Ukraine No. 984 of 24 October 201278 defines certain
categories of undertakings that are referred to as the basic networks of cultural establishments, in
particular:

Local level: municipal libraries, museums, galleries, exhibition halls, theatres, philharmonic and
concert organisations, artistic groups, cinemas, film and video distribution companies, clubs
(centres, palaces, club-houses, etc.), educational establishments in the sphere of culture, entrylevel specialised artistic schools (such as aesthetics schools), recreation parks and some others;

National level: State-owned national museums, national libraries, archives, galleries, circuses,
theatres, philharmonics, musical groups and ensembles, culture information centres,
educational establishments, film studios, artistic galleries, exhibitions, and others.
According to Article 20 of the Law on Culture, the State shall ensure a positive environment for
investment and innovation in the sector of culture. However, this provision lacks details as to its
implementation. Chapter V (“Financing and ensuring economic activity of establishments of
culture”) of the Law on Culture defines basic pre-conditions for budget support for these
establishments.
Article 26 (Section 1) defines the State and local budgets as, inter alia, the main sources of financing
for cultural establishments. Article 26 (Section 2) also provides that, depending on the ownership,
cultural establishments may be financed or supported though the State or local budgets. Taking
into account the provisions of budgetary legislation, one has to distinguish between two forms of
cultural establishments: State-owned enterprises and other budgetary organisations (institutions).
In this context, budgetary organisations (e.g. musical and art schools) are directly financed by the
State or local communities. At the same time, these organisations may also provide services on a
commercial basis. However, revenues from the sale of those services are accounted for in the
relevant budgets. Such budgetary organisations are typically non-profit organisations. As for Stateowned enterprises (e.g. circus companies) these are generally expected to cover their costs through
commercial activities. This type of undertaking may, however, also receive budget support covering
expenses, at least partially.
Article 26 provides that private establishments of culture should be financed by their founders.
However, this provision does not exclude the possibility for these organisations also receiving
public financial support.
Article 27 envisages the possibility of tax privileges (both for natural and legal persons) if they are
willing to support the development of culture. Such a benefit must be prescribed in detail by tax
legislation.
Article 28 establishes a State duty to provide cultural establishments with buildings and other
premises that are constructed, particularly, to meet the establishments’ needs. The State also
78
Resolution of the Cabinet of Ministers of Ukraine “On the approval of the formation of the core network of
cultural institutions” No. 984-2012-п of 24 October 2012.
131
supports, where appropriate, manufacturing capacities and networks of production facilities for
special equipment, musical instruments, etc.
In addition to these general rules, legal acts also refer to particular institutions of culture and
cultural heritage:
(1) Libraries
The Law of Ukraine “On Libraries and Librarians”79 establishes a framework for budget support to
public libraries. According to Article 4 the law, the State shall:

support the development of libraries and librarians by providing direct financing, tax benefits,
credits and price policies;

finance the creation of information and telecommunications networks for exchange of
information, ensuring access to global networks and to special library resources;

draft programmes for the development of libraries and ensure financing for those programmes.
Article 26 of the Law on Libraries and Librarians stipulates the principles of budget financing in this
sphere. Public libraries are financed from the State budget and those with municipal libraries are
financed through local budgets. Private libraries are to be financed by their founders. In particular,
the budgetary funds may be used to develop and implement programmes for librarians, to
construct and reconstruct library facilities, to develop librarian services provided by means of
telecommunication and other services for customers located in distant areas, as well as for disabled
people. Funds envisaged for the needs of libraries should be included as a separate budget line into
the State and corresponding local budgets. At the same time, all other revenues (private donations,
service fees etc.) received by libraries are not limited in their amounts and are not taken into
account when deciding the scope of budget financing for the next fiscal period. However, such
revenues must be used exclusively for the statutory activities of libraries.
(2) Theatres
Similar provisions are contained in the Law of Ukraine “On Theatres”80. Article 3 of that law (“Public
policy in the sphere of theatres”) enumerates a number of objectives for budget support or tax
benefits that may be justified, namely:

support and development of theatres’ networks, provision of modern equipment for
theatres;

providing incentives for the development of theatres through the improvement of their
technical and material base, through tax benefits and favourable credit terms, etc.;

drafting and supporting the implementation of national and regional programmes and
ensuring their financing through the State and local budgets.
Article 14 of the Law on Theatres takes the same approach to financing as the basic Law on Culture.
Depending on State or communal ownership, theatres can be financed from the relevant budgets.
The same formula can also be found in Article 16 on the budget financing of the maintenance of
theatrical buildings and facilities.
79
Law of Ukraine “On Libraries and Librarians” No. 32/95-ВР of 27 January 1995.
80
Law of Ukraine “On Theatres” No. 2605-IV of 31 May 2005.
132
Legal provisions concerning commercial activities of theatres (Article 15) are more sophisticated in
comparison with the general provisions of the Laws on Culture and on Libraries. First, there is a list
of economic activities that theatres may perform on a commercial basis (such as sales of souvenirs,
advertising, production of promotional materials, etc.). Secondly, the activities that fall within the
main purpose of theatrical business (live performances and related activities) are defined as nonprofit activities.
(3) Procedures for the distribution of public funds
The Resolution of the Cabinet of Ministers of Ukraine No. 247 of 9 March 201181 established a
procedure for the distribution of public funds to the programmes managed by the Ministry of
Culture and Arts; envisaging financial support to national theatres, national art collections, concert
and circus organisations, national professional unions in the sphere of culture and arts and the
functioning of the Ukrainian Society “Prosvita”. This procedure enumerates a list of eligible and
prohibited expenses and establishes certain intensity thresholds for support of particular activities
in the sector.
Some examples may illustrate this policy:

purchasing of vehicles is prohibited for all listed recipients;

any financial support provided to cover operational expenses of undertakings that cannot
be financed from their revenues, must not exceed:
1)
for the State-owned circuses performing on permanent premises – 75% of their
actual annual gross revenues;
2)
for the State-owned travelling circus companies – 84% of their actual annual
gross revenues;
3)
for national theatres and concert organisations owning premises for public
theatrical and musical performances - 90% of their actual annual gross revenues;
4)
for national and State-owned art galleries and concert organisations owning
premises that belong to “architectural memorials” of the national heritage – 90% of
their actual annual gross revenues. As further conditions, they must provide their
premises for religious communities and promote the development of creative
activities of major art collections and public performances of musical compositions;
5)
for national and State-owned art collections and concert organisations, as well as
for circuses that do not own permanent premises for public performances - 98% of
their actual annual gross revenues.
Below are the lists of establishments of culture that are major recipients of State support through
the Ministry of Culture and Arts, including relevant budgetary programme (line) numbers:
1) Programme (Line 1801030) “Provision of general and special education by general and extracurricular art schools, methodological support to schools” provides financing to a range of schools
and boarding schools in Kyiv, Kharkov, Lvov and Odessa, as well as to the State Methodological
Centre, coordinating the said schools curricula;
2) Programme (Line 1801190) “Libraries and museums, exhibitions, cultural, and informational
activities” provides financing for the following organisations:
81
Resolution of the Cabinet of Ministers of Ukraine “On the approval of the procedure for the distribution of
public funds to the programmes managed by the Ministry of Culture and Arts” No. 247 of 9 March 2011.
133
Libraries:
- National Parliamentary Library of Ukraine
- State Library for the Youth
- National Historic Library
- National Library for Children
- Kharkiv State Academic Library
- Odessa National Academic Library.
Museums:
- Memorial Area “National Museum of History of Great Patriotic War 1941-1945”
- National Museum of History of Ukraine
- National Museum of Literature of Ukraine
- National Museum of Arts of Ukraine
- National Taras Shevchenko Museum
- National Museum of Ukrainian Architecture and Culture.
- National Scientific and Research Restoration Centre
- National Memorial “Marshall Konev’s Hight”
- National Museum in Lvov
- Lvov Art Gallery
- National Museum and Memorial of Victims of Occupational Regimes “The Jail at Lontskogo St.”
- National Museum “Memorial of Victims of Famines in Ukraine”
- Museum of History of the Desyatynna Church
- Museum-Reserve of Ukrainian Pottery.
3) Programme (Line 1801060) “Education in the sphere of culture and arts by high education
establishments of III and IV levels of accreditation” provides financing for the following institutions:
- National Musical Academy
- National Academy of Fine Arts and Architecture
- Kyiv National University of Theatre, Cinema and Television
- Lugansk State Academy of Culture and Arts
- Donetsk State Musical Academy
- Kharkov National University of Arts
- Kharkov State Academy of Culture
- Odessa National Musical Academy
- Lvov National Musical Academy
- Kyiv National University of Culture and Arts.
4) Programme (Line 1801490) “Preservation of historical, cultural and architectural heritage,
activities on protection of cultural heritage, issuing passports, making inventory and restoring
architectural monuments and monuments of cultural heritage” provides financing to:
- National Kyiv-Pechersk Historical and Cultural Complex (Kyiv-Pechersk Lavra)
- National Complex “Sophia Kyivska” (St. Sophia Cathedral)
- National Complex “Ancient Galych”
134
- National Historical and Cultural Area “Kachanivka”
- National Historical and Ethnographic Area “Pereyslav”
- National Heritage Area “Fatherland of Taras Shevchenko”
- National Historical and Memorial Complex “Field of the Berestechko Battle”
- National Heritage Area “Khortytsya”
- National Historical and Cultural Area “Hetman Capital”
- National Historical and Cultural Area “Chygyryn”
- Shevchenko National Complex
- National Historical and Archeological Area “The Stone Tomb”
- National Historical Memorial Area “Bykivnya Graves”
- National Historical Memorial Area “Babyn Yar”
- National Historical and Architectural Heritage area The Town of Zhukov
- National Historical and Cultural Heritage Area in The Town of Belza
- National Historical and Architectural Heritage Area “Old Uman” (city of Uman)
- National Heritage Area “Castles of Ternopil Region”
- National Historical and Architectural Heritage Area The Towns of Kremenets and Pochayiv
- National Historical and Architectural Heritage Area The Town of Berezhany
- National Historical and Architectural Heritage Area “Kamyanets” (in the city of Kamyanets-Podilsky)
- National Historical and Architectural Heritage Area “Khotyn Fortress”
- National Heritage Area the Town of “Glukhiv”
- National Architectural and Historical Heritage Area “Ancient Chernihiv”
5) Programme (Line 1801120) "Financial support to national and State art groups, concert and
circus organisations” relates to the following instititions:
- State-owned enterprise “State Circus Company of Ukraine” and 8 other public circuses in the cities of
Dnepropetrovsk, Donetsk, Zaporizhzhya, Kryvyi Rig, Lugansk, Lvov, Odessa, Kharkov; as well as the
Directorate for travelling circuses etc.
- National Honoured Academic Ukrainian Choir
- National Honoured Academic Dance Ensemble of Ukraine
- National Honoured Choir of Bandura Players
- National Honoured Academic Choir ‘Dumka’
- National House of Chamber Music
- National Honoured Academic Symphonic Orchestra of Ukraine
- State Academic Variety and Symphonic Orchestra of Ukraine
- National Academic Brass Band of Ukraine
- National Academic Orchestra of Folk Instruments
- National Ensemble of Soloists “Kyivska Kamerata”
- National Philharmonic Orchestra of Ukraine
- National Odessa Philharmonic Orchestra
- Ivano-Frankovsk National Ensemble of Song and Dance “Gutsulia”
6) Programme (Line 1801110) "Financial support to national theatres" provides financing for:
- National Taras Shevchenko Academic Opera and Ballet Theatre
- National Ivan Franko Academic Drama Theatre
- National Lesya Ukrainka Academic Russian Drama Theatre
135
- Odessa National Academic Opera and Ballet Theatre
- Kharkov National Academic Opera and Ballet Theatre
- National Maria Zankovetska Academic Ukrainian Drama Theatre
- Lvov Solomiya Krushelnytska National Academic Opera and Ballet Theatre.
5.5.3. Protection of cultural heritage
State support directed to the protection of national cultural heritage is provided on the basis of the
Law of Ukraine “On the Protection of Cultural Heritage” No. 1805-III of 8 June 2000. Article 38 of
this Law envisages direct financing of specific activities through State and local budgets. The Law
also provides that financing may be done through special funds within State and local budgets
(Article 40). A special fund is defined as an accounting position in the budgetary process (not a
targeted separate fund) that is covered by revenues from certain taxes or other specific revenues,
which often include revenues of public establishments of culture from commercial services.
According to Article 41 of the Law, amounts accumulated in special funds can be spent on the
following needs:

conservation, restoration, rehabilitation, museum storage, reparation, preservation,
protection, accounting, safeguarding and promotion of objects of cultural heritage;

research in the field of protection of cultural heritage;

development and implementation, as well as support of programmes and projects in the field
of protection of cultural heritage;

storage of documentation and automated information retrieving systems within data banks
on objects of cultural heritage;

education, professional training and retraining of personnel engaged in protection of cultural
heritage;

support to ethnic organisations and national minorities in protecting their cultural heritage;

international co-operation in the sphere of cultural heritage protection.
Programmes through which relevant activities in this sphere are financed can be adopted at
regional or local levels (depending on actual needs) and these programmes include objectives,
action plans, amounts of financing and, in some cases, expected results in specific or in general
terms.
Article 42 of the 2000 Law envisages, in general terms, tax benefits for organisations involved in the
protection of the cultural heritage, but no specific instruments have been provided.
The Law of Ukraine “On the Protection of Archaeological Heritage” No. 1626-IV of 18 March 2004
provides in Article 20 for the financing of relevant activities.
136
5.5.4. Support for film production
The Law of Ukraine “On the Film Industry”82 contains several provisions on State support for this
sector, contained within Chapter V (“State support and financing of cinematography”).
Article 18 of this Law defines the film industry as part of the cultural sector. Moreover, it provides
that public policy in the film industry is implemented through State support for the production of
films.
Article 19 includes a number of principles concerning State support for the film industry:

the State shall promote the production, distribution and demonstration of films in
networks of cinemas, video distributors and TV; It also takes measures to preserve and
renew the cinematographic heritage, etc.;

State support shall be granted to film producing organisations, regardless of their
ownership (private or public);

State support can take the forms of tax benefits, customs regulations and exchange
controls;

Undertakings working in the film industry, recipients of budget funds may use the same
tariffs on postal, telegraph and telephone services as applied by budgetary
organisations.
Article 20 contains provisions concerning further budget support for the film industry. These
budgetary funds are defined under separate lines and included into a list of so- called “protected”
expenses, usually financed on a priority basis.
Furthermore, to secure necessary financial resources, the Cabinet of Ministers established a special
account to accumulate revenues from a special duty for the development of the national film
industry. The general and special budget expenses for support of the film industry are financed
from this account.
Article 21 regulates public contracting for the production of films, giving priority to films for
children and youth. At the same time, however, the said provisions are rather declarative.
Some public support instruments can also be found in the annual laws on State budget and in the
tax legislation. Below is a list of tax exemptions and benefits envisaged in the Tax Code of Ukraine
for the film industry since 2011.
(1) Corporate Income Tax (CIT)
Tax benefits are contained in the Tax Code of Ukraine (Title III, Article 138): “Transfers to residents
of Ukraine for the purpose of production of national films (including animated films) and audiovisual works, shall be accounted as expenses on regular (general) activity not related to the
production and/or provision of works and services in the amount not exceeding 10 per cent of the
taxable revenue for the previous fiscal year".
However, according to information provided by the State Tax Administration, this tax benefit has
not caused any foregoing of revenue from the State budget in the period from 2011 to 2013.
According to the Tax Code of Ukraine (Title XX, Chapter 4, Article 19), income is not accounted as
part of taxable income; cash or asset transfers, received by undertakings in the film industry and/or
engaged in animated cartoon productions, when earmarked for the production of national films.
82
Law of Ukraine “On the Film Industry” No. 9/98-ВР of 13 January 1998.
137
From 2011 to 2013 the budget revenue foregone from this tax benefit amounted to 20 million UAH.
Table 41: CIT Tax benefits to film production, 2011 to 2013
2011
2012
2013
2.9 million UAH
7.5 million UAH
10.1 million UAH
(2) Value-added tax (VAT)
The Tax Code of Ukraine (Title XX, Chapter 2, Article 12) exempts from VAT until 1 January 2016
operations on the supply of national films, as defined by the Law of Ukraine “On the film industry”
by producers, demonstrators and distributors, as well as works and services required for film
production, including the replication of national films and foreign films, dubbed, voiced-over or
sub-titled in the Ukrainian language in the territory of Ukraine.
From 2011 to 2013, the budget revenue foregone from this tax benefit amounted to 77.5 million
UAH:
TABLE 42: VAT Tax benefits to film production, 2011 to 2013
2011
2012
2013
11.1 million UAH
37.5 million UAH
29.9 million UAH
(3) Land tax
The Tax Code of Ukraine (Title XX, Chapter 6 Article 3) also exempts undertakings in the film
industry (producing national films) from land tax until 1 January 2016. A list of such undertakings is
approved by a Resolution of the Cabinet of Ministers of Ukraine.
From 2011 to 2013, the budget revenue foregone from this tax benefit amounted to 9.5 million
UAH:
TABLE 43: Land Tax benefits to film production, 2011 to 2013
2011
2012
2013
3.1 million UAH
3.5 million UAH
2.9 million UAH
The Resolution of the Cabinet of Ministers of Ukraine “On the approval of the list of undertakings
working in the film industry (producing national films), subject to exemption from land tax on plots
of land used for the production of films until 1 January 2016” No. 48 of 26 January 2011 approved
the following list of undertakings exempted from land tax:
138
TABLE 44: Film undertakings exempted from Land tax until 2016
No
Name
State-owned enterprise “National Oleksandr Dovzhenko Movie Studio”
1
State-owned enterprise “National Oleksandr Dovzhenko Centre”
2
State-owned enterprise “National Cinematheque of Ukraine”
3
Closed joint-stock company “Odessa Movie Studio”
4
5
State-owned enterprise 'Ukrainian Studio of Chronicle and Documentary Films”
6
Ukrainian studio of television films “Ukrtelefilm”
Land plot
In hectares.
16.28
1.8
8.19
6.622
1.9
2.7
5.5.5. Support for audio-visual production, TV and radio broadcasting
State support for TV and Radio production is provided only to publicly owned TV and radio stations.
Until recently (2014) they included the following undertakings:

27 regional and local companies;

“Ukrtelefilm” Studio;

National TV Company;

National Radio Company;

“Culture” TV State-owned company;

Global Service “Ukrainian TV & Radio”.83
State-owned TV and radio undertakings produce about 4 per cent of the overall total of TV and
radio programmes in Ukraine.
Most of these undertakings are accountable to the State Television and Radio Committee, with the
exceptions of the National TV Company and the National Radio Company, whose presidents were
appointed by the Cabinet of Ministers of Ukraine. However, in terms of financing, these two
companies are among the beneficiaries supported by the Committee. This public authority is also
responsible for providing subsidies to the publishing industry (“the Ukrainian Book Programme”).
The need for the establishment of a public TV company, independent from the State Executive, has
been debated by Ukrainian politicians and experts for more than eight years. Only recently, in
November 2014, the Cabinet of Ministers of Ukraine established a public joint stock company with
100% of capital owned by the State. This will incorporate the assets of all the above-mentioned
State-owned enterprises. Therefore, this sector will not be managed by a single public authority but
by a supervisory board, whose members will be nominated by the Government.
Unlike other business activities related to culture, the Law of Ukraine “On Television and Radio” No.
3759-XII of 21 December 1993 does not envisage direct budget support to certain TV & Radio
stations or networks. However, it is provided that the State-owned and communal companies must
broadcast official messages of public authorities (Article 45). This provision leads to a certain level
of support to these companies.
83
The full list of State-owned undertakings can be found at http://comin.kmu.gov.ua.
139
Budget support to the State-owned TV & Radio companies was also provided on the basis of
another law - the Law of Ukraine “On State order to meet strategic needs of the State” No. 493/95BP of 22 December 1995. The term “State order” here was infact an expression inherited from the
“planned economy” times. Since 2005 public needs have been regulated by special public
procurement rules and this Law was repealed in April 2014 when a new public procurement law
was adopted.
According to this Law, State orders had to be financed from the State budget (Article 2). The
contracting procedure for the production and broadcasting of TV and radio programmes was
defined by the Resolution of the Cabinet of Ministers “On State orders for the production of TV and
radio programmes” No. 918 of 13 July 2004. Such contracts were made also in accordance with the
Law of Ukraine “On procedures for highlighting activities of executive authorities and bodies of local
self-governance” No. 539/97-BP of 23 September 1997, which regulated the dissemination of news,
in particular, related to:

Events in Ukraine and abroad;

The protection of constitutional rights and freedoms, fulfilling of duties of citizens;

The environmental situation, medical and sanitary conditions and the promotion of
healthy living;

Information aimed at the creation of a positive image of Ukraine in the world;

other news, social and political programmes, educational programmes, sport events,
programmes for youth and children, etc.
Public contracts, however, should not be made for the production and broadcasting of programmes
promoting an unhealthy way of life that might negatively impact on the moral and physical
conditions of citizens. Neither shall they contain advertisements (except for social advertisements).
The contracting procedures were rather complicated. The State Television and Radio Committee, as
well as the Ministry of Economy and Trade and the Ministry of Finance had established special
committees that were authorised to receive, analyse and amend contractual proposals from the
State-owned companies, taking into account the efficiency of the proposed use of public funds and
the resources of the State-owned enterprises, as well as the need to avoid duplication. The role of
the MEDT was to include these proposals into a draft annual State programme of social and
economic development and to submit it to the Ministry of Finance, so that relevant financing was
included in the draft law on the State budget for the next fiscal period. After the State budget had
been approved by the Parliament, the whole package of public contracts in the relevant sectors had
also to be approved by the Cabinet of Ministers of Ukraine.
The broadcasting of such types of programmes, financed through the State budget, is in most cases
done by the State-owned enterprise for radio broadcasting, radio communication and television.
Satellite transmissions are, however, provided by another State-owned enterprise with the name
“Ukrcosmos”.
5.5.6. Support for book publishing
The Ukrainian sector of book (and other printed matter) publishing and distribution includes more
than 5,600 undertakings. Of these, only 17 publishing and printing houses are managed by the
State Television and Radio Committee and are eligible for direct State support through State orders.
140
Public support for book publishing84 in Ukraine typically takes two forms: State orders and tax
exemptions. Article 26.1 of the Law of Ukraine “On Publishing Business” No. 318/97 of 5 June 1997
provides a list of criteria to be included into public orders for book publishing:

Highlighting of actual topics in the context of State building and history of Ukraine;

Strengthening scientific, technical and investment potential of the State;

Integration of Ukraine into the European and world communities;

Upbringing of youth;

Satisfying readers’ demands according to data provided by the libraries of Ukraine;

Publications dedicated to memorable dates and events.
Similar to the TV and radio sectors, the Cabinet of Ministers adopted a Resolution “On the
procedure for preparing State orders for book publishing and distribution” No. 850 of 12
September 201285. This Resolution, however, sets quite a different list of objectives for ordering
publications than the objectives mentioned in the above law, namely:
(1) to promote:

the development of the national book publishing sector, achieving quantities and
quality levels up to the standards accepted by the leading countries of the world;

the publication of Ukrainian literature classics and books by young authors;

the translations of Ukrainian authors into foreign languages to represent and promote
national publications abroad;

the satisfaction of cultural and educational needs of Ukrainian citizens and Ukrainians
living abroad through the availability of national literature.
(2) Replenishment of library stocks with new national publications;
(3) Supporting general interest in reading literature and furthering the national culture
through reading;
(4) Ensuring access to world literature through translation and publication of foreign authors in
the Ukrainian language.
Similar to the approach to ordering TV and Radio programmes, the procedure for preparing a State
order involves a number of stages. First, the authorities that are going to order certain publications
are required to draft a list of relevant topics to be published. Secondly, a call for proposals is
advertised to publishing houses concerning titles, authors, languages, circulation of publications
and relevant costs. Thirdly, the public authorities are then required to conduct a preliminary
selection of proposals through special expert councils, established within the authority. The
members of such councils should be free from any conflict of interest between the contracting
authority and the bidding publishers. The further steps in this procedure include interaction with
the MEDT and possible adjustments to the package of orders, in accordance with the availability of
funds envisaged by the Law on the State budget of Ukraine. In parallel, with the new Law on Public
Procurement law effective since April 2014, the provisions of these Government regulations are still
in force.
84
Law of Ukraine “On publishing business” No. 318/97 of 5 June 1997.
85
Resolution of the Cabinet of Ministers of Ukraine “On the procedure for preparing State orders for book
publishing and distribution” No. 850 of 12 September 2012.
141
The State Television and Radio Committee of Ukraine controls and disburses the budgetary funds
earmarked to support book publishing. Based on the provisions of the Law on publishing industry
and the relevant procedure for State ordering, the Committee, acting as the contracting body, has
issued its own procedure for the implementation of the “Budget Programme for Publishing Books
within the State Programme “Ukrainian Book”86 (Committee’s Order “On approval of the procedure
for implementation of the budget programme ‘Publishing of Books within the “Ukrainian Book”
Programme’” No. 313 of 28 November 2012.
The “Ukrainian Book” Programme is a Governmental Programme that establishes objectives, the
scope of work and indicative amounts of necessary funding. The expression “budget programme” is
actually only a heading in the Law on the State Budget, covering expenses for the Sector
Development Programme taking into account the actual possibilities to provide budget support for
activities within such a programme.
It is important to note, that the development of programmes may support both private and Stateowned undertakings operating in the publishing industry. A list of applicants for public support and
the actual beneficiaries of State support are available at the website of the State Television and
Radio Committee87.
Another form of public support for the publication of books in Ukraine is tax benefits. The list of tax
exemptions and benefits, envisaged by the Tax Code of Ukraine since 2011, contains the following:
A) Title XX, Chapter 4, Article 18 of TCU provides that income of publishers and printing
houses, received from activities of producing books in the territory of Ukraine, excluding
items of an erotic character, shall be exempted from the corporate income tax.
From 2011 to 2013, budget revenue foregone from this tax benefit amounted to some 122
million UAH:
TABLE 45: CIT Tax benefits to book publishing, 2011 to 2013
2011
2012
2013
40.7 million UAH
45.2 million UAH
37.7 million UAH
B) Title XX, Chapter 2, Article 5 of the Tax Code of Ukraine exempts from VAT works and
services provided by residents of Ukraine performing such activities as publishing,
production, distribution of books, as well as the production of paper and cardboard.
Income received from these activities shall not be less than 100% of the total income of
undertaking for the first reporting period after its establishment or at least 50% of the total
income for the previous reporting (tax) year.
From 2011 to 2013, budget revenue foregone from the Title XX, Chapter 2, Article 5 VAT
exemption amounted to 20.5 million UAH:
86
Order of the State Television and Radio Committee of Ukraine “On the approval of the procedure for the
implementation of the budget programme “Publishing of Books within the ‘Ukrainian Book’ programme” No.
313 of 28 November 2012.
87
http://comin.kmu.gov.ua/control/uk/publish/category/main?cat_id=34138.
142
TABLE 46: VAT Tax benefits to book publishing, 2011 to 2013
(Tax Code Title XX, Chapter 2, Article 5)
2011
2012
2013
2.9 million UAH
7.5 million UAH
10.1 million UAH
C) The Tax Code of Ukraine (Title XX, Chapter 2, Article 6) also exempts from VAT operations
(works and services) in the publishing industry, the production an distribution of books by
publishing houses and publishing organisations, by printing houses, by distributors of books
produced in Ukraine, the operations of production and/or sale of paper and cardboard,
produced in Ukraine for printing of books, school notebooks, textbooks and manuals by
national producers, the sales of books produced in Ukraine with the exception of
advertisements, services on the placement of advertisements and materials of an erotic
character as well as publishing advertisements and materials of an erotic character.
From 2011 to 2013, budget revenue foregone from Title XX, Chapter 2, Article 6 VAT
exemptions amounted to almost 215 million UAH:
TABLE 47: VAT Tax benefits to book publishing, 2011 to 2013
(Tax Code Title XX, Chapter 2, Article 5)
2011
2012
2013
63.5 million UAH
84.2 million UAH
67.1 million UAH
5.5.7. Support for sports activities
There are several sub-sectors in the overall sports sector: professional sport, mass sport, sport for
people with disabilities (Para Olympics) and youth sport. The Law of Ukraine “On Physical Culture
and Sport” contains a very general provision about financing of relevant activities through the State
and local budgets (Article 47 “Financing of Physical Culture and Sports”).
Recipients of State support in the sector of sports include State-owned enterprises and in some
cases also sport federations that legally are NGOs. For instance, members of national teams are
approved by the Ministry of Youth and Sports. State-owned enterprises often maintain sport
facilities and finance their sport teams.
Some particular directions in which the budget financing is disbursed, as well as undertakings
eligible for budget support, are listed in the Resolution of the Cabinet of Ministers “On the
Procedure for the use of budget funds envisaged for the development of physical culture, sport of
highest achievements and reserve sports” No. 152 of 29 February 201288. In particular, funds are
provided to support:

National teams for Olympic and non-Olympic sports;

The functioning of the State Department of National Teams and Sport Activities;
88
Resolution of the Cabinet of Ministers of Ukraine “On the procedure for the use of budget funds envisaged
for the development of physical culture, sport and highest achievements and reserve sports” No. 152 of 29
February 2012.
143

The National Anti-Doping Centre;

The State School of Highest Sportsmanship;

The State Institution “State Centre for Olympic Biathlon Training ”;

The organisation and implementation of events according to the annual schedule of
physical culture and sport events, in particular, training camps for national Olympic and
non-Olympic teams in the territory of Ukraine and abroad and the organisation of national
competitions among citizens;

Participation of national teams in the World Games for non-Olympic sports, World games
of martial arts during the year, when such games take place;

Remuneration for sports champions, prize winners in international competitions (with the
exception of Olympic and Youth-Olympic games) and their trainers;

Payment of grants and scholarships provided by the President of Ukraine and the Cabinet
of Ministers of Ukraine for sportsmen, trainers and leaders of physical culture and sport;

Rebuilding and reconstruction of existing sport facilities, the design and construction works
for new buildings and sport facilities managed by State-owned undertakings and
establishments under the Ministry of Youth and Sports;

The functioning of the All-Ukrainian Centre for Health of Population “Sport for Everybody”.
State support to Olympic and Paralympic sports activities is provided on the basis of the Law of
Ukraine “On support of Olympic and Paralympics Movement and Highest Sport Achievements in
Ukraine” No. 1954-III of 14 September 2000.
The Resolution of the Cabinet of Ministers “On the Procedure for disbursement of State budget
funds for financial support of the Paralympics movement in Ukraine”of 201189 defines a procedure
envisaging the transfer of funds to the National Centre of Paralympics and Deaflympics Training and
Rehabilitation of People with Disabilities, as well as to the Western Rehabilitation and Sports
Centres. These funds must be used for organising sport and methodologies for the development
and promotion of the Paralympics movement and sport among people with disabilities, as well as
for operational expenses of the above centres. Another recipient of these funds is the National
Committee of Sport for persons with disabilities.
5.6. State Support to the Financial Sector
In Ukraine, like in many other countries, the banking and financial services sector was the most affected by
the financial crisis of 2008 to 2009, including the largest and most important banks and other financial
institutions. The highest losses were suffered by banks pursuing high-risk policies (investment) in terms of
assets and liabilities management. These banks, to a large extent, supported their liquidity through interbank resources and artificially maintained liquidity ratios by swap transactions. They often ignored
requirements to balance assets and liabilities by their maturity. In particular, they aggressively used savings
accounts (inherently on-demand accounts), which allowed those banks to artificially improve their balance
sheets at the request of the National Bank of Ukraine and reduce the impact of long-term imbalances
between assets and liabilities by a regulatory capital adequacy ratio.
89
Resolution of the Cabinet of Ministers “On the Procedure for the disbursement of State budget funds for
financial support of the Paralympics movement in Ukraine”, No. 199 of 28 February 2011.
144
The National Bank of Ukraine implemented anti-crisis measures to help the financial sector and shaped its
own anti-crisis policies for the banking sector with some influence (advisory in nature) from international
financial institutions, especially the IMF. In particular, measures recommended by the IMF mainly
focused on interventions by the Central Bank and governmental activities90.
The anti-crisis policy essentially involved interventions by the National Bank using two types of
instrument:
a) changes of the interest rates, and
b) the provision of additional liquidity.
Government actions included the following three support measures (see Table 48):



Re-capitalisation of banks;
Provision of Government guarantees and expansion of depositor protection mechanisms;
Bailout of assets and guarantees.
Table 48: Anti-crisis measures in the financial sector
(A) Central bank of Ukraine: Monetary measures to support liquidity
Changes in the
Lowering interest rates
interest rate
Provision of liquidity Requirement on reserves or extension of funding, increasing the number of
auctions and/or provision of more bulky credit lines
Execution of functions of domestic creditors of last resort: Expansion of the
network, requirements or options for providing collateral security
Other measures for providing liquidity (including support for money market funds)
Execution of functions of domestic creditors of last resort in the foreign exchange
market, foreign currency swaps (together with other Central Banks) and foreign
exchange repos
(B) Government: Measures for the stabilisation of the financial sector
Recapitalisation
Capital infusion (through purchasing ordinary or preferential shares)
Capital infusion (subordinated debt)
Provision of
Enhancement of depositor protection measures
Government
Guarantees on liabilities (all)
guarantees
Guarantees on liabilities (new)
Provision of State loans to the specified institutions
Bailout of assets
Purchase of assets (certain assets, acquisition of bank assets by other banks)
Purchase of assets (creation of a "bad" (troubled) bank)
Accumulation of liquidity for bailout/write-off of toxic assets
"Isolating" toxic assets on bank’s balance
"Isolating" toxic assets out of the bank’s balance sheet
Guarantees on assets
Since 2008, in order to safeguard certain constitutional rights of Ukrainian citizens, to ensure economic
resilience and to minimise possible damage to the economy and to the financial system of Ukraine as a
result of the financial crisis, the National Bank initiated the recapitalisation of a number of banks with the
participation of the State (Ukrgazbank, PJSC Rodovid Bank, JSCB 'Kyiv' and PJSC Ukrainian Bank for
90
World Economic Outlook Update: A Policy-Driven, Multispeed Recovery / International Monetary Fund. –
2010. – [Web resource]. – Access: http://www.imf.org/external/pubs/ft/weo/2010/update/01/.
145
Reconstruction and Development). These activities facilitated, to some degree, a reduction of the social
and economic strain. However, they failed to bring the expected results in terms of restoring solvency and
viability of the recapitalised banks. As this recapitalisation was a temporary measure, targeted at regaining
stability and to support the capitalisation of the financial system, an exit strategy should have been
developed for the State, in order to refund the State budget expenses due to participation in the
recapitalisation of banks (Table 49).
Table 49: Key financial indicators of banks recapitalised by the State
( 01.10. 2014), UAH million
Indicator
Rodovid Bank
Ukrgazbank
ACB Kyiv
Statutory capital
Financial result
12,359,00
-297,50
10,000.00
6,88
3,567.54
-3.53
Ukrainian Bank for
Reconstruction and
Development
118.00
-3,94
Assets
8,584,95
22,970.21
2,088,92
113.14
It should be noted, however, that the repayment of the refinancing loans might take a long time, because
the contracts for refinancing loans have been extended for up to seven years, and in this respect, the
National Bank submitted relevant proposals to the Ministry of Finance of Ukraine.
From 2008 to 2011, a total amount of 54.8 billion UAH was directed for additional recapitalisation
of banks, including: State-owned banks – 29.6 billion UAH, Other banks recapitalised – 25. 2 billion
UAH (of which - PJSC “Rodovid Bank”: 12.359 billion UAH; PJSC "ACB 'Kyiv'": 3.565 billion UAH; and
PJSC “Ukrgazbank”: 9.3 billion UAH).
At present, the Government’s share in the authorised capital of PJSC “Rodovid Bank” amounts to
99.99%, in PJSC "ACB ‘Kyiv’" 99.94% and in PJSC “Ukrgazbank” 92%.
According to the Resolution of the Cabinet of Ministers of Ukraine “On the establishment of the
financial restructuring bank” of 201191, a specialised bank for financial restructuring was
established on the basis of PJSC “Rodovid Bank”, which will during a period not exceeding five years
focus on dealing with the troubled assets of State-owned banks and banks recapitalised with State
participation.
The need for the regulation of corporate rights of the State, resulting from the participation in the
banks’ authorised capital, including the procedure for the sale of such rights, was obvious after the
validity of Article 2 (І) of the Law of Ukraine “On urgent measures to mitigate the negative effects of
the financial crisis and on amendments to certain legislative acts of Ukraine” expired. Its provisions
had previously regulated the State’s participation in the recapitalised banks, corporate rights and
an exit strategy for the withdrawal of capital from the recapitalised banks by the State.
To this end, the Ministry of Finance developed a draft law “On special terms of sale of the State
shareholdings in the authorised capital of banks capitalised with participation of the State” which
was adopted on 15 March 2012 by the Verkhovna Rada of Ukraine and signed by the President of
Ukraine on 12 April 2012. This Law established principles for the alienation of publicly owned banks
(Article 2). One of the basic principles is the exclusion of individuals who at the time of State
recapitalisation of the banks owned significant stakes in those banks. Also, the Law restricts the
opportunities to participate in the bidding by investors with reputational problems.
91
Resolution of the Cabinet of Ministers of Ukraine “On the establishment of the financial restructuring
bank”, No. 880-p of 14 September 2011.
146
The Law also defines the objects of sale and selling agents (Articles 3 and 4), other interested
parties (Articles 5 and 6), a procedure and methodology for the sale of banks (Section 2), the
contents of each stage in the process of selling banks (which, in particular, should be regulated by
special normative acts) and established requirements for financial and contractual terms for selling
shareholdings in banks (Sections 3 and 4).
In line with the requirements of international financial institutions, regarding best international
practices in consulting services during the sale of banks, the Law requires the use services of
specialised advisors during the complex pre-sale preparations and the implementation of the sale
plan with the direct supervision of all selling processes by relevant consultants. The implementation
of these provisions requires that the budget of the Ministry of Finance includes additional funds for
the services of relevant consultants and for covering other costs associated with the sale of banks.
147
CHAPTER 6: CONCLUSIONS
Since its independence in 1991, Ukraine has passed through many transformations on its road to a
functioning market economy based on competition, deeper integration into international political
and economic structures and higher social security standards for its citizens. The Ukrainian
Governments have made serious efforts to create a more attractive environment for investments,
to boost research and development activities and to provide incentives for private initiative and
business development in the country. At the same time, having inherited huge public obligations
and State owned assets from the Soviet Ukraine, all Governments had to directly or indirectly
subsidise public enterprises, at least in strategically important industries, to secure their survival or
restructuring in order to adjust their business to ever growing competitive pressures inherent in
open market models.
At the same time, available public resources have been rarely allocated according to long-term
development strategies and financial planning. Despite numerous political declarations, existing
regional and national development programmes, extensive legislation and regulations that were
adopted in Ukraine over the latest decades, most of the Government decisions concerning public
support for economic activities in general, or for particular State-owned enterprises, have been
made as a rapid reaction to critical economic situations or current priorities of political elites that
have been subject to frequent changes.
The Ukrainian legislation does not provide a clear classification of budget support programmes
according to their horizontal or sectoral objectives. For analytical purposes, horizontal or sector
specific measures can be defined according to the data published by the State Fiscal Service of
Ukraine (regarding tax benefits) and according to indicators (regarding direct subsidies and
transfers) published by the State Treasury of Ukraine concerning budget performance by
enterprises, institutions and organisations under relevant budget programmes.
The analysis of various forms and the scope of State support to economic activities in Ukraine
demonstrates that the generally preferred solution selected by the Government to promote
industrial and regional development has been the establishment of tax benefits. The same
approach has been applied to most horizontal support measures (regional development, support of
SMEs, and R&D activities). Of course, with continuous budget deficits, tax benefits look quite
neutral since they do not immediately impact the State and regional budgets at the time of
decision-making. Specifically, VAT exemption, as an incentive through indirect taxation, has been
one of the most popular instruments of public support to undertakings. Budget revenues foregone
due to VAT exemptions in the last five years sometimes amounted to as much as 90 per cent of all
budget revenue foregone from tax benefits.
In contrast, the scope of deferrals and exemptions from Corporate Income Tax in the overall
structure of tax benefits turns out to be quite small. Thus, the total budget revenue foregone due
to deferrals and exemptions from corporate income tax in 2013 amounted to about 0.38% of GDP.
Import duty exemptions, provided for aircraft construction enterprises from 2010 to 2012
accounted for about 0.26% of of the total amount of import duties collected annually.
Direct budget subsidies to industrial enterprises, both for Rescue and Restructuring measures and
for the operational needs of State-owned enterprises (mainly in coal, energy supply and generation,
148
steel, road maintenance and agriculture), have been quite substantial and comparable to the
budget revenue foregone due to tax benefits. In overall terms, direct subsidies to support
undertakings, both in the public and private sectors, amounted to 1.9% of GDP in 2011 and 3% of
GDP in 2012.
In order to support large enterprises in strategically important sectors, which are typically
dependent on energy (e.g. steel and ferroalloy metal production and coal and ore mining), the
Governments have also used preferential electricity tariffs in combination with subsidies, State
guarantees and compensation for interest charges. Thus, in 2013 for example, budget subsidies for
the restructuring of industrial enterprises (including steel and mining enterprises) amounted to 67
million UAH compared to 483 million UAH of indirect support in the form of preferential tariffs on
electricity established to support the viability of two particular ferroalloy plants.
In terms of regional development, State resources directed to support investments by
undertakings, SME development, environmental programmes and job creation have been rather
limited. On average, regional development measures have been financed to the extent of less than
40% of the targeted amounts in the annually allocated budgets. The most obvious reason for such
under-financing of regional development programmes is the lingering budget deficit. However,
there is also very little official information concerning the implementation of approved regional
development programmes and the disbursement of financial resource for this purpose.
Support measures directed for the rescue and restructuring of State-owned enterprises has been
quite modest and in 2013 amounted only to 0.33 per cent of total budget expenditures.
Consolidated budget financing of all establishments and activities related to culture and sports
(including museums, opera theatres, music schools and academies, public recreation parks and
historic heritage territories and objects, book publishing, TV and Radio, as well as sports facilities,
national Olympic teams, sports schools and clubs etc.) in Ukraine in the last three years amounted
to 11-13 billion UAH annually. This is comparable to the amount of budget subsidies to the coal
mining sector (13 billion UAH). A quite distinct public support was provided to one national project
related to sports – the organisation of the “Euro-2012” football finals, which amounted to a total of
40 billion UAH from 2009 to 2012. Half of this money was used to develop sports facilities, while
the other half was spent on transport infrastructure development and some other purposes.
While the nature and use of State supports in Ukraine has been largely similar to schemes of
support to be found in other countries, many of the amounts are quite small in overall terms with
the exception of highly targeted supports to certain industries and generally expensive VAT
exemptions.
At a wider policy level, the exploration of State supports in Ukraine contained in this Study points to
the following significant policy and operational issues concerning State support to undertakings in
Ukraine:

A lack of strategic approach, transparency and predictability of the decision-making process
for State support measures;

A lack of eligibility criteria for the scope, categories of recipients of State support and
accountability, both on behalf of the public grantors and beneficiaries of public resources,
for the effective use of available public resources;

A lack of information concerning existing State support measures, actual amounts in all
forms being provided for particular enterprises and business activities;

The absence of a streamlined institutional infrastructure for the assessment, approval and
monitoring of State support measures in all sectors and regions of Ukraine.
149
Ukraine’s obligations under the EU-Ukraine Association Agreement signed in 2014 should change
the situation in the coming years. Importantly, Ukraine should adjust its system of public support to
undertakings in order to comply with the rules of Ukraine’s State aid monitoring and control
system. The adoption of the Law “On State Aid to Undertakings” on 1 July 2014 was the first
important step in establishing this system. Further steps to be taken before the system becomes
fully operational in 2017 include:

the development of comprehensive and transparent regulations in line with EU standards,
establishing criteria for the assessment of State aid measures in the light of market failures
and specific development needs; and

the efficient organisation of the Anti-Monopoly Committee of Ukraine as the regulatory
body which will collect relevant data, assess the need, amount and duration of State
support measures, their potential impact on the markets and communicate with grantors
and beneficiaries of existing and proposed State support measures.
In a wider sense, Ministries and other public organisations, together with regional and local
authorities, will need to re-examine continuing State support measures which benefit business
undertakings to consider their continuing necessity and to ensure that they can withstand the legal
and economic scrutiny that the fully operational State aid system will entail. This policy reflection
can usefully commence well in advance of the date of entry into force of the Law on State Aid to
Undertakings. While this Study does not set out to be comprehensive in that respect (or indeed to
formally distinguish between the wider concept of State supports and the more specific concept of
“State aid”), it clearly indicates several key areas to be taken into account in the context of
compliance with the Law and the updating of various policy areas of relevance.
150
ANNEXES
Annex 1: Budget Revenues foregone based on tax measures
Table 1: Budget revenues foregone due to preferential taxation by types of taxes and duties
(mandatory payments) as of 1 January 2011, UAH thousands.
Table 2: Budget revenue foregone due to preferential taxation by types of taxes and duties
(mandatory payments) as of 1 January 2012, UAH thousands.
Table 3: Budget revenue foregone due to preferential taxation by types of taxes and duties
(mandatory payments) as of 1 January 2013, UAH thousands.
Table 4: Budget revenue foregone due to preferential taxation by types of taxes and duties
(mandatory payments) as of 1 January 2014, UAH thousands.
Table 5: Budget revenue foregone due to preferential taxation by types of taxes and duties
(mandatory payments) as of 1 July 2011, UAH thousands.
Table 6: Budget revenue foregone from Tax Benefits for Employment of Disabled Persons from
2008 to 2013, UAH million.
Annex 2: State Guarantees
Table 1: State Guarantees provided from 2011 to 2013
Annex 3: Support to the Coal sector
Table 1: Support to Coal Sector from the State Budget from 2002 to 2012, UAH million.
Annex 4: State Investment Projects
Table 1: State investment projects (programmes) involving loans from foreign governments, foreign
banks and international financial institutions in 2011.
Table 2: State investment projects (programmes) involving loans from foreign governments, foreign
banks and international financial institutions in 2012.
Table 3: State investment projects (programmes) involving loans from foreign governments, foreign
banks and international financial institutions in 2013.
151
Annex 5: Tax benefits in the energy sector
Table 1: Number of industrial enterprises involved in economic activities classified as energy, coal
mining, oil and oil processing, numner of employees at these enteprises.
Table 2. Indicators of consolidated budget revenue foregone due to tax benefits for the energy
sector from 2010 to 2013, UAH million.
Table 3: Budget Support for Coal Industry from 2007 to 2014 according to purposes, UAH million.
Annex 6: Legal bases for support to aircraft construction and shipbuilding
Table 1: Legislation providing public support to the aircraft construction sector.
Table 2: Legislation providing public support to the shipbuilding sector.
Annex 7: Legal bases for support to the civil aviation sector
Legal framework for support of the civil aviation sector (air transportation services and airports).
Annex 8: State support to Culture and Sports
Table 1: Consolidated budget support (including State and local budgets) for Sports, Culture and
Mass Media from 2008 to2009, UAH million.
Table 2: Consolidated budget support (State and local budgets) for Sports, Culture and Mass Media
from 2010 to 2011, UAH million.
Table 3: Consolidated budget support (State and local budgets) for Sports, Culture and Mass Media
from 2012 to 2013, UAH million.
152
Annex 1: Budget Revenues foregone based on tax measures
Table 1: Budget revenues foregone due to preferential taxation by types of taxes and duties (mandatory payments) as of 1 January
2011, UAH thousands
Regions
11020000
#
AUTONOMOUS
REPUBLIC OF
CRIMEA
VINNYTSIA
REGION
1
12020000
13020000
2
3
130300
00
4
13050000
14010000
5
6
14020
000
7
16010000
22090000
8
9
500800
00
10
TOTAL
11
1
13, 771.7
2,882.5
0.0
0.0
9,059.6
745,753.2
0.0
50.8
0.0
0.0
771,517.8
2
66,587.5
4,538.8
0.0
0.0
11,075.7
939,426.0
0.0
3.1
0.0
0.0
1,021,631.3
VOLYN REGION
3
21,558.7
2,185.5
0.0
0.0
1,504.8
225,713.3
0.0
6.3
0.0
0.0
250,968.6
DNIPROPETROVSK
REGION
4
206,723.4
6,577.6
0.0
0.0
78,194.6
2 ,248,586.2
0.0
259.0
0.0
0.0
2,540,340.8
DONETSK REGION
5
334,881.9
4,501.7
0.0
0.0
11,075.0
1,418,545.3
0.0
4,647.5
0.0
0.0
1,773,651.4
6
2,181.8
3,028.4
0.0
0.0
751.7
399,338.7
0.0
60.5
0.0
0.0
405,361.2
7
665.8
88.2
0.0
0.0
1,057.8
97,537.5
0.0
1.2
0.0
0.0
99,350.6
8
296,769.0
4,408.0
0.0
0.0
13,879.0
873,052.6
761.2
152.9
81.7
0.0
1,189,104.3
IVANO-FRANKIVSK
REGION
9
1,106.2
798.4
0.0
0.0
2,967.6
260,809.4
0.0
8.8
0.0
0.0
265,690.5
KYIV REGION
10
51,628.6
5,971.5
0.0
0.0
2,118.8
2,159,917.8
0.0
36.3
59.1
0.0
2,219,732.0
KIROVOHRAD
REGION
11
152.7
5,391.0
0.0
0.0
1,473.6
733,144.3
0.0
30.8
0.0
0.0
740,192.3
LUHANSK REGION
12
45,144.9
4,028.8
0.0
0.0
3,147.7
455,058.2
0.0
62.6
0.0
0.0
507,442.2
LVIV REGION
13
15,733.3
630.6
0.0
0.0
5,032.0
784,990.9
0.0
33.6
13.8
0.0
806,434.1
MYLCOLAIV
REGION
14
16,937.6
4,006.7
0.0
0.0
1,024.0
1,048,102.6
0.0
1.7
0.0
0.0
1,070,072.6
ODESA REGION
15
49,299.4
6,007.2
0.0
0.0
18,346.7
1,448,728.8
0.0
150.0
0.0
0.0
1,522,532.2
ZHYTOMYR
REGION
ZAKARPATTIA
REGION
ZAPORIZHZHIA
REGION
153
POLTAVA REGION
16
122.011.7
5,617.0
0.0
0.7
2,439.3
1,290,990.2
0.0
15.6
0.0
0.0
1,421,074.4
RIVNE REGION
17
2,509.1
2,122.0
0.0
0.0
2,099.1
290,823.3
0.0
44.3
0.0
0.0
297,597.8
SUMY REGION
18
3,826.7
3,848.0
0.0
0.0
11,279.3
334,953.1
0.0
64.2
0.0
0.0
353,971.3
TERNOPIL REGION
19
3,303.5
681.3
0.0
0.0
1,618.4
497,871.8
0.0
16.8
0.0
0.0
503,491.8
KHARKIV REGION
20
218,280.3
6,683.8
0.0
0.0
67,124.4
1,351,196.5
0.0
104.6
0.0
1,451.5
1,644,841.1
KHERSON REGION
21
71.8
3,279.8
0.0
0.0
785.3
527,700.3
0.0
37.1
0.0
0.0
531,874.3
KHMELNYTSKYI
REGION
22
1,178.5
2,762.6
0.0
0.0
1,593.1
559,670.2
0.0
119.0
0.0
0.0
565,323.5
CHERKASY REGION
23
37,021.1
3,672.9
0.0
0.0
8,067.5
1,115,053.8
0.0
17.4
0.0
0.0
1,163,832.7
24
1,316.7
126.8
0.0
0.0
4,974.1
221,851.6
0.0
5.8
0.0
0.0
228,275.0
25
16,348.5
5,082.8
0.0
0.0
1,518.7
489,519.5
0.0
9.0
0.0
0.0
512,478.5
CITY OF KYIV
26
562,505.2
417.1
0.0
0.0
620,202.8
13,404,415.5
0.0
3,194.6
0.0
0.0
14,590,735.1
CITY OF
SEVASTOPOL
27
6,027.4
76.3
2,571.3
0.0
4,304.2
116,877.5
0.0
0.5
0.0
0.0
129,857.3
2,097,543.1
89,415.3
2,571.3
0.7
886,714.9
34,039,628.1
761.2
9,134.0
154.5
1,451.5
37,127,374.7
CHERNIVTSI
REGION
CHERNIHIV
REGION
TOTAL
154
Table 2: Budget revenues foregone due to preferential taxation by types of taxes and duties (mandatory payments) as of 1 January
2012, UAH thousands
Regions
#
11020000
13050000
14010000
14020000
14030000
18020000
1
2
3
4
5
6
1803
0000
7
22090000
TOTAL
8
9
AUTONOMOUS
REPUBLIC OF
CRIMEA
VINNYTSIA
REGION
VOLYN REGION
1
93, 866.7
10,753.2
1,120,077.1
0.0
0.0
0.0
0.0
0.0
1,224,697.0
2
121,727.5
1,769.1
1,036,186.2
223,949.3
0.0
0.0
0.0
0.0
1, 383,632.0
3
85,655.6
4,848.9
715,114.6
0.0
0.0
0.0
0.0
0.0
805,619.2
DNIPROPETROVSK
REGION
DONETSK REGION
4
1,006,287.2
65,720.0
1,959,683.6
12,954.6
466.6
179.1
0.0
0.0
3,045,291.0
5
1,395, 018.3
7,424.8
3,012,141.1
0.0
0.0
0.0
0.0
0.0
4,414,584.2
ZHYTOMYR
REGION
ZAKARPATTIA
REGION
ZAPORIZHZHIA
REGION
IVANO-FRANKIVSK
REGION
KYIV REGION
6
64,193.4
1,323.1
404,279.1
75,510.6
0.0
0.0
0.0
0.0
545,306.1
7
5,571.2
2,343.8
213,510.8
575,548.5
0.0
0.0
0.0
0.0
796,974.3
8
1,319,940.8
7,143.5
1,032,646.1
334.3
0.0
0.0
0.0
74.0
2,360,138.7
9
278,636.8
8,712.3
255,993.0
83.0
113,653.0
0.0
0.0
0.0
657,078.1
10
193,834.9
2,249.6
1,769,630.3
51,631.2
0.0
0.0
0.0
2.2
2,017,348.4
KIROVOHRAD
REGION
LUHANSK REGION
11
49,203.9
762.5
893,110.3
0.0
0.0
0.0
0.0
0.0
943,076.6
12
985,888.4
5,290.2
569,827.2
0.0
0.0
0.0
0.0
0.0
1,561,005.8
LVIV REGION
13
121,286.7
6,882.7
873,896.1
0.0
0.0
0.0
0.0
24.3
1,002,089.8
MYLCOLAIV
REGION
ODESA REGION
14
97,412.4
5,769.6
1,015,144.7
1,628.2
0.0
0.0
0.0
0.0
1,119,954.9
15
88,173.3
32,967.1
1,735,443.5
159,431.2
0.0
0.0
643.7
0.0
2,016,658.9
155
POLTAVA REGION
16
475,803.3
2,179.9
1,381,194.6
3,996.9
0.0
0.0
0.0
0.0
1,863,174.8
RIVNE REGION
17
53,037.0
1,583.3
294,530.9
235.9
0.0
0.0
0.0
0.0
349,387.1
SUMY REGION
18
129,585.8
2,030.1
535,613.5
414,135.0
0.0
0.0
0.0
0.0
1,081,364.3
TERNOPIL REGION
19
27,316.8
2,279.7
551,955.8
0.0
0.0
0.0
0.0
0.0
581,552.3
KHARKIV REGION
20
322,558.1
34,389.9
2,021,022.9
33,364.6
0.0
0.0
0.0
0.0
2,411,335.5
KHERSON REGION
21
8,032.3
6,949.5
632,853.8
60,003.4
0.0
0.0
0.0
0.0
707,839.0
KHMELNYTSKYI
REGION
CHERKASY REGION
22
26,532.4
712.6
611,156.3
385,334.8
0.0
0.0
0.0
0.0
1,023,736.1
23
27,609.7
1,609.2
1,906,009.4
300.1
0.0
0.0
0.0
0.0
1,935,528.4
CHERNIVTSI
REGION
CHERNIHIV
REGION
CITY OF KYIV
24
4,663.6
1,276.9
269,330.7
0.0
0.0
0.0
0.0
0.0
275,271.2
25
59,104.7
1,949.7
593,090.0
0.0
0.0
0.0
0.0
0.0
654,144.4
26
8,351,514.8
33,661.0
15,813,903.6
12,615.4
0.0
0.0
0.0
0.0
24,211,694.9
CITY OF
SEVASTOPOL
TOTAL
27
17,136.3
2,619.4
158,378.1
0.0
0.0
0.0
0.0
0.0
178,133.8
15,409,591.9
255,201.7
41,375,723.0
2,011,057.2
114,119.6
179.1
643.7
100.5
59,166,616.8
156
Table 3: Budget revenues foregone due to preferential taxation by types of taxes and duties (mandatory payments) as of 1 January
2013, UAH thousands
Regions
#
Name
A
B
1
11020000
12030
000
13050000
14010000
14020000
14030000
18020000
TOTAL
1
2
3
4
5
6
7
8
206,364.0
0.0
13,647.5
1,512,660.5
0.0
0.0
26,9
1,732,698.8
62,422.1
0.0
1,970.6
957,011.3
210,821.1
0.0
0.0
1,232,225.0
2
AUTONOMOUS
REPUBLIC OF
CRIMEA
VINNYTSIA REGION
3
VOLYN REGION
49,999.4
0.0
2,588.1
305,793.3
0.0
0.0
0.0
358,380.8
4
DNIPROPETROVSK
REGION
54,212.0
0.0
18,238.5
1,510,921.6
24,236.9
287,3
87,0
1,607,983.2
5
DONETSK REGION
176,631.4
0.0
9,390.5
1,635,529.7
0.0
0.0
0.0
1,821,551.6
6
ZHYTOMYR REGION
52,636.4
0.0
1,565.5
533,551.8
69,957.5
0.0
0.0
657,711.2
7
ZAKARPATTIA
REGION
ZAPORIZHZHIA
REGION
IVANO-FRANKIVSK
REGION
3,215.6
0.0
936.5
160,387.2
731,981.5
0.0
0.0
896,520.8
29,196.6
0.0
17,536.4
796,295.8
0.0
0.0
0.0
843,028.8
295,375.3
0.0
6,445.0
343,439.5
94.8
153,790.1
0.0
799,144.7
957,007.0
0.0
11,719.8
1,753,803.3
323,859.4
0.0
0.0
3,046,389.5
8
9
10
KYIV REGION
11
28,283.3
0.0
1,121.0
916,974.1
0,0
0.0
0.0
946,378.3
12
KIROVOHRAD
REGION
LUHANSK REGION
29,330.1
0.0
7,877.0
623,501.0
0,0
0.0
0.0
660,708.1
13
LVIV REGION
46,478.3
0.0
30,885.5
730,267.6
0,0
0.0
0.0
807,631.5
14
MYLCOLAIV REGION
27,714.7
0.0
12,086.1
635,693.9
1,344.2
0.0
0.0
676,838.9
15
ODESA REGION
105,836.4
0.0
33,021.7
1,049,907.7
3,595,4
0.0
0.0
1,192,361.2
157
16
POLTAVA REGION
580,044.4
0.0
3,629.2
1,728,669.9
0,0
0.0
0.0
2,312,343.5
17
RIVNE REGION
40,617.9
0.0
2,416.4
381,294.9
0,0
0.0
0.0
424,329.2
18
SUMY REGION
84,733.2
0.2
3,844.3
684,324.4
436,937.9
0.0
0.0
1,209,840.1
19
TERNOPIL REGION
21,275.6
0.0
1,634.1
498,039.4
0,0
0.0
0.0
520,949.2
20
KHARKIV REGION
78,420.6
0.0
36,148.4
1,531,263.0
240,169.5
0.0
0.0
1,886,001.6
21
KHERSON REGION
27,971.9
0.0
10,135.4
659,696.6
54,474.1
0.0
0.0
752,277.9
22
30,781.0
0.0
876.9
647,528.9
482,888.2
0.0
0.0
1,162,074.9
23
KHMELNYTSKYI
REGION
CHERKASY REGION
80,558.5
0.0
1,390.8
1,726,446.0
3.3
0.0
0.0
1,808,398.6
24
CHERNIVTSI REGION
8,778.4
0.0
3,887.2
268,071.5
0.0
0.0
0.0
280,737.1
25
CHERNIHIV REGION
44,226.7
0.0
2,509.6
615,178.3
0.0
0.0
0.0
661,914.6
26
CITY OF KYIV
1,693,041.3
0.0
21,661.1
3,255,3414
0.0
0.0
0.0
4,970,043.7
27
CITY OF
SEVASTOPOL
CENTRAL OFFICE
20,913.2
0.0
5,651.0
89,366.5
249.0
0.0
0.0
116,179.8
10,272,713.1
0.0
96,374.3
4,720,486.4
184,903.7
0.0
0.0
15,274,477.5
TOTAL
15,108,778.4
0.2
359,188.4
30,271,445.3
2,765,516.4
154,077.4
113.8
48,659,119.9
28
158
Table 4: Budget revenues foregone due to preferential taxation by types of taxes and duties (mandatory payments) as of 1 January
2014, UAH thousands
Regions
#
Name
A
B
1
AUTONOMOUS REPUBLIC OF CRIMEA
2
VINNYTSIA REGION
3
VOLYN REGION
4
11020000
13050000
14010000
14020000
140300
00
1803
0000
TOTAL
1
2
3
4
5
6
7
81,601.4
14,656.1
692,401.9
0.0
0.0
0.0
788,659.5
70,280.6
7,449.9
1,081,229.2
0.0
0.0
0.0
1,158,959.8
17,773.3
2,507.6
266,556.6
0.0
0.0
0.0
286,837.5
22,359.3
35,564.2
1,290,154.6
5,033.0
69.8
0.0
1,353,180.9
82,489.8
14,149.4
1,298,391.7
0.0
0.0
0.0
1,395,030.8
20,677.5
1,405.3
487,869.3
0.0
0.0
0.0
509,952.2
10,071.5
1,215.8
176,350.7
0.0
0.0
9.1
187,647.1
12,271.4
10,831,8
836,224.7
944.3
0.0
0.0
860,272.3
21,243.8
10,419.2
318,709.3
76.2
0.0
0.0
350,448.6
377,597.1
5,821.6
1,914,728.6
1,730,366.1
0.0
0.0
4,028,513.4
29,420.2
1,422.8
783,857.0
0.0
0.0
0.0
814,700.1
3,593.2
7,026.2
582,790.9
0.0
0.0
0.0
593,410.3
9,259.2
39,933.1
762,285.0
0.0
0.0
0.0
811,477.3
17,452.6
11,807.0
611,430.0
1,189.7
0.0
0.0
641,879.3
71,267.7
42,600.2
1,138,289.2
4,064.7
0.0
0.0
1,256,221.8
DNIPROPETROVSK REGION
5
DONETSK REGION
6
ZHYTOMYR REGION
7
ZAKARPATTIA REGION
8
ZAPORIZHZHIA REGION
IVANO-FRANKIVSK REGION
9
10
KYIV REGION
11
KIROVOHRAD REGION
12
LUHANSK REGION
13
LVIV REGION
14
MYLCOLAIV REGION
15
ODESA REGION
159
16
POLTAVA REGION
17
RIVNE REGION
18
SUMY REGION
19
TERNOPIL REGION
20
KHARKIV REGION
21
KHERSON REGION
22
KHMELNYTSKYI REGION
23
CHERKASY REGION
24
CHERNIVTSI REGION
25
CHERNIHIV REGION
26
CITY OF KYIV
27
CITY OF SEVASTOPOL
28
CENTRAL OFFICE
TOTAL
177,435.5
4,130.0
1,462,576.0
626.9
0.0
0.0
1,644,768.4
32,891.7
4,065.5
436,685.4
0,0
0.0
0.0
473,642.6
66,945.9
10,827.5
520,620.4
294,207.3
0.0
0.0
892,601.1
14,074.2
3,289.8
429,299.4
0.0
0.0
0.0
446,663.3
42,317.4
65,610.4
1,309,522.3
748,626.2
0.0
0.0
2,166,076.3
11,405.9
13,511.8
540,847.1
31,790.9
0.0
0.0
597,555.8
27,671.8
5,397.1
704,889.9
0.0
0.0
0,4
737,959.2
36,016.7
3,371.7
1,809,926.5
0.0
0.0
0.0
1,849,314.9
7,139.2
6,395.2
236,148.4
0.0
0.0
0.0
249,682.9
24,5671
2,892.2
584,853.8
0.0
0.0
0.0
612,313.0
381,914.9
196,421.4
3,523,542.6
104,677.5
0.0
0.0
4,206,556.4
25,791.0
11,052,7
78,925.3
0.0
0.0
0.0
115,769.0
3,837,699.8
137,310.6
2,325,211.5
299,930.8
607.2
0.2
6,600,760.1
5,533,229.7
671,086.2
26,204,317.4
3,221,533.8
677.0
9.8
35,630,853.8
160
Table 5: Budget revenues foregone due to preferential taxation by types of taxes and duties (mandatory payments) as of 1 July
2014, UAH thousands
Regions
#
Name
A
B
1
AUTONOMOUS REPUBLIC OF CRIMEA
2
VINNYTSIA REGION
3
VOLYN REGION
4
DNIPROPETROVSK REGION
5
DONETSK REGION
6
ZHYTOMYR REGION
7
ZAKARPATTIA REGION
8
ZAPORIZHZHIA REGION
9
IVANO-FRANKIVSK REGION
10
KYIV REGION
11
KIROVOHRAD REGION
12
LUHANSK REGION
13
LVIV REGION
14
MYLCOLAIV REGION
15
ODESA REGION
16
POLTAVA REGION
17
RIVNE REGION
11020000
13050000
14010000
14020000
14030000
18030000
TOTAL
1
2
3
4
5
6
7
0.0
11.3
52.5
0.0
0.0
0.0
63.8
9,737.3
4,726.1
418,272.1
0.0
0.0
0.0
432,735.4
127.8
1,244.6
116,457.7
0.0
0.0
0.0
117,830.1
6,277.5
29,764.9
648,441.3
0.0
0.0
0.0
684,483.8
3,738.7
5,063.2
670,787.8
0.0
0.0
0.0
679,589.8
5.4
739.7
162,548.3
0.0
0.0
0.0
163,293.4
4.9
502.6
56,763.9
0.0
0.0
1.2
57,272.6
2,913.3
7,011.2
313,031.2
1,037.1
0.0
0.0
323,992.7
1,760.8
5,849.1
146,281.0
0.0
0.0
0.0
153,891.0
14,400.5
3,114.5
755,670.7
314,720.1
0.0
0.0
1,087,905.8
235.6
654.3
411,022.9
0.0
0.0
0.0
411,912.7
274.4
2,032.4
176,216.7
0.0
0.0
0.0
178,523.5
1,313.5
16,176.2
237,679.7
0.0
0.0
0.0
255,169.4
1,584.7
6,063.2
253,572.1
7.7
0.0
0.0
261,227.7
4,584.6
19,159.5
348,672.2
613.2
0.0
0.0
373,029.6
81,593.1
2,162.0
969,994.2
543.4
0.0
0.0
1,054,292.7
910.0
2,112.4
144,346.7
161
0.0
0.0
0.0
147,369.1
18
SUMY REGION
19
TERNOPIL REGION
20
KHARKIV REGION
21
KHERSON REGION
22
KHMELNYTSKYI REGION
23
CHERKASY REGION
24
CHERNIVTSI REGION
25
CHERNIHIV REGION
26
CITY OF KYIV
27
CITY OF SEVASTOPOL
28
CENTRAL OFFICE
TOTAL
5,091.2
5,453.7
212,753.5
94,205.4
0.0
0.0
317,503.8
82.8
1,272.9
170,924.5
0.0
0.0
0.0
172,280.2
3,856.7
23,145.6
651,681.6
355,023.8
0.0
0.0
1,033,707.7
382.7
6,516.8
237,379.5
26,518.6
0.0
0.0
270,797.6
1,319.3
2,827.6
302,701.2
0.0
0.0
0.2
306,8483
10,237.6
1,200.0
573,741.7
0,0
0.0
0.0
585,179.3
237.2
3,118.3
88,095.5
0.0
0.0
0.0
91,451.0
1,466.9
1,505.6
257,318.4
0.0
0.0
0.0
260,290.9
69,080.8
47,480.4
1,029,673.9
34,344.8
0.0
0.0
1,180,579.9
0.0
0.0
0.0
0.0
0.0
0.0
0,0
1,311,613.9
58,792.9
756,317.7
120,098.6
109.2
0.0
2,246,932.4
1,532,831.3
257,701.0
10,110,398.6
947,112.6
109.2
1.4
12,848,154.2
162
Codes
11020000
Corporate income tax
DESCRIPTION
12020000
Tax on owners of transport vehicles and other self-propelled machines and mechanisms
12030000
First vehicle registration fee
13010000
Fee for using of forest resources and using of forestry land plot Fund
13020000
Fee for the special water use
13030000
Fee for the use of mineral resources
13040000
Fee for exploration work performed by the State budget
13050000
Land tax
14010000
Value added tax
14020000
Excise tax on domestic products
14030000
Excise tax on imported products
16010000
Local taxes and duties
18020000
Fee for parking of vehicles
18030000
Tourist tax
21060000
Rental payment
22090000
State duty
50080000
Fee for environmental pollution
163
Table 6: Budget revenues foregone from Tax Benefits for the Employment of Disabled Persons from 2008 to 2013, UAH million.
Benefit
code
11020000
Benefit
Legal Base
2008
2009
116.93
127.80
161.33
124.70
106.58
106.43
6.98
6.40
7.69
0.81
0.71
1.92
Par. 7.12 of Article 7 of
the Law of Ukraine "On
Corporate Income Tax",
subsection 7.12.1
49.85
54.82
75.97
18.98
—
—
The Law of Ukraine
"Amendments to the
Law of Ukraine 'On
Corporate Income Tax'",
sub-paragraph 5.2.11 of
par. 5.2 Article 5
67.03
71.59
85.33
20.93
—
—
Corporate Income Tax (CIT)
Proportion in CIT
11020081
11020155
The following income is subject to tax exemption: income of
enterprises and organisations founded by non-governmental
organisations of the disabled that are their full property, received
from sale (supply) of goods, performance of works and provision of
services, except excisable goods, and services of supplying excisable
goods received under agreements of commission (consignment),
sponsorship, agency, trust management and other civil law
agreements entitling such taxpayer to supply goods on behalf and
under the instruction of other person without transfer of ownership
to such goods, where during the previous fiscal year the number of
disabled persons having their primary employment in the
organisation is not less than 50 per cent of the average number of
regular employees on the personnel listing on condition that the
payroll fund of such disabled persons during the fiscal period
constituted at least 25 per cent from the amount of general
expenditures for labour compensation. The abovementioned
enterprises and NGOs of the disabled can enjoy this benefit if they
have a permit to use it issued by the Commission on Operation of
Enterprises and Organisations of NGOs of the Disabled in accordance
with the Law of Ukraine “On Principles of Social Protection of
Disabled Persons in Ukraine.”
Gross expenditures shall include the amounts of expenditures
connected with free provision of coal for everyday needs according
to the norms determined following the procedure stipulated by the
Cabinet of Ministers of Ukraine to workers in the sphere of coal
mining, pensioners that are not working and who have the
experience of working at coal enterprises doing underground works
for at least 10 and working on the surface for at least 20 years, to
disabled persons who sustained injury or developed an occupational
Budget revenues foregone from tax exemptions, UAH million
164
2010
2011
2012
2013
disease while working at these enterprises, as well as to workers’
families who receive survivor’s pension.
11020168
Gross income shall not include funds or property that is provided as
non-refundable assistance to public organisations of the disabled
and enterprises and organisations determined in clause 7.12 of
article 7 of this Law.
subpara. 4.2.16, par. 4.2
of Article 4 of the Law of
Ukraine "On Corporate
Income Tax"
0.05
1.39
0.03
0.00
—
—
11020238
Funds or property provided in the form of assistance to public
organisations of the disabled, unions of public organisations of the
disabled and enterprises and organisations determined in clause
154.1 of article 154 of this Code.
Tax Code of Ukraine N
2755-VI of 2 December
2010, subp.136.1.17
par.136.1 Art.136. sect.
III
—
—
—
1.48
0.17
—
11020247
Other expenditures of regular activity (except financial expenditures)
not directly connected with production and/or disposal of goods,
performance of works, and provision of services include the cost of
coal and coal bricks that were provided free of charge in the amount
and according to the list of occupations determined by the Cabinet
of Ministers of Ukraine, including compensation of cost of such coal
and coal bricks: to workers in the sphere of coal mining (processing)
and employed by coal producers; pensioners who worked at coal
mining (processing) enterprises and coal producers: doing
underground works for at least 10 years for men and 7 years and 6
months for women; doing works connected with underground
conditions for at least 15 years for men and 12 years and 6 months
for women; working at processing lines on the surface of an
operating mine or of the mines under construction, outcrop mines,
coal-preparation and brick plants for at least 20 years for men and
15 years for women; disabled persons and war and labour veterans,
and persons awarded with “Miner’s Glory” or “Miner’s Valour”
badge of 1st, 2nd or 3rd degree, persons whose disability resulted
from a common disease in cases where they enjoyed this right
before disability; families of workers who were killed (died) at coal
producing (processing) enterprises who receive survivor’s pension.
Tax Code of Ukraine N
2755-VI of 02 December
2010 cl. ґ) subp.138.10.6
par.138.1 Art.138 sect. III
—
—
—
83.31
106.41
85.87
165
11020259
The following income is subject to tax exemption: income of
enterprises and organisations founded by non-governmental
organisations of the disabled that are their full property, received
from sale (supply) of goods, performance of works and provision of
services, except excisable goods, and services of supplying excisable
goods received under agreements of commission (consignment),
sponsorship, agency, trust management and other civil law
agreements entitling such taxpayer to supply goods on behalf and
under the instruction of other person without transfer of ownership
to such goods, where during the previous fiscal year the number of
disabled persons having their primary employment in the
organisation is not less than 50 per cent of the average number of
regular employees on the personnel listing on condition that the
payroll fund of such disabled persons during the fiscal period
constituted at least 25 per cent from the amount of general
expenditures for labour compensation. The abovementioned
enterprises and NGOs of the disabled can enjoy this benefit if they
have a permit to use it issued by the Commission on Operation of
Enterprises and Organisations of NGOs of the Disabled in accordance
with the Law of Ukraine “On Principles of Social Protection of
Disabled Persons in Ukraine.”
13050000
Land fees
Tax Code of Ukraine N
2755-VI of 2 December
2010 par. 154.1 Art.154
sect. III
Proportion in land fees received
13050030
A Land fee exemption shall apply to civic organisations of disabled
persons, where during the previous fiscal year the number of
disabled persons having their primary employment in the
organisation is not less than 50 per cent of the average number of
regular employees on the personnel listing on condition that the
payroll fund of such disabled persons during the fiscal period
constituted at least 25 per cent from the amount of general
expenditures for labour compensation.
Tax Code of Ukraine N
2755-VI of 2 December
2010, subp.282.1.7 par.
282.1 Art.282 Section XIII
166
—
—
—
—
—
20.56
4.18
5.21
5.72
6.41
6.86
9.61
0.86
0.88
0.65
2.52
1.91
1.43
0.24
0.40
0.33
0.62
0.90
1.08
13050036
13050059
14010000
14010085
14010092
Tax exemption applies to income of enterprises and organisations of
public organisations of the disabled whose property is in their
ownership received from sale of goods (works, services), except
excisable goods and income received from gambling business, where
during the previous fiscal (tax) period the number of disabled
persons with permanent employment in such organisation is not less
than 50 per cent of the total number of employees on condition that
the labour compensation fund of the disabled during the fiscal
period constituted at least 25 per cent of the total amount of
expenditures to labour compensation. The above-mentioned
enterprises and organisations of public organisations of the disabled
can apply this benefit if they have a permit to use such benefit
issued by the multiagency Commission on Operation of Enterprises
and Organisations of NGOs of the Disabled under the Law of Ukraine
“On the foundations of social security of the disabled in Ukraine.”
Tax exemption shall apply to spa treatment, rehabilitation and
recreation institutions, owned by civic organisations of disabled
persons.
Tax Code of Ukraine N
2755-VI of 2 December
2010, subp.282.1.7
p.282.1 st.282 Section
XIII
3.94
4.81
5.39
5.58
5.61
8.31
Tax Code of Ukraine N
2755-VI of 2 December
2010 sp.282.1.6
par.282.1 Art.282
Section XIII
—
—
—
0.21
0.35
0.22
Value added tax
118.41
123.02
182.86
924.22
1076.54
1 262.68
Proportion in VAT
0.57
0.48
0.54
2.23
3.56
4.82
The Law of Ukraine "On
Value Added Tax" subp.
5.1.4. para. 5.1
34.72
42.89
68.34
—
—
—
The Law of Ukraine "On
Value Added Tax"
subpara. 5.1.10. Para.5.
2.02
2.31
1.33
—
—
—
Tax exemption shall apply to trans-actions on: sale of special goods
for disabled persons according to the list defined by the Cabinet of
Ministers of Ukraine for the authorized State authority, including
passenger cars for disabled persons compensated at the expense of
the State or local budgets, and transactions on their free provision to
disabled persons in cases determined by law.
Tax exemption shall apply to trans-actions on providing, services
related to accommodation of seniors and disabled persons in
assisted-care facilities, provision of catering and overnight stay for
homeless persons at specialized institutions.
167
14010107
14010110
Tax exemption shall apply to transactions on supply of goods (except
for excisable goods) and services (other than services provided
during lottery and entertaining games, and services on supply of
excisable goods received under commission (consignment) contract,
security agreement, trust agreement, or other civil-law contracts,
authorizing the taxpayer (the consignee) to exercise the supply of
goods on behalf of another person (the commissioner) without
transfer of the ownership of such goods) which are directly
manufactured by enterprises and organisations founded by civic
organisations of disabled persons where the number of disabled
individuals employed full-time by these organisations in the previous
reporting period amounts to no less than 50 per cent of the average
quantity of full-time workers; and provided that the labor
remuneration fund for such disabled persons during a reporting
period amounts to no less than 25 per cent of the total costs of
labour remuneration attributed to costs.
The production of goods is considered direct, if the amount of
expenses incurred for recycling (processing or other transformation)
of the components, parts, and other purchased goods used in the
manufacture of such products, is not less than 8 per cent of the sale
price of the manufactured goods.
The abovementioned enterprises and organisations of public
organisations of the disabled can apply this benefit if they have a
permit to use such benefit issued by the multiagency Commission on
Operation of Enterprises and Organisations of NGOs of the Disabled
under the Law of Ukraine “On the foundations of social security of
the disabled in Ukraine.”
Tax exemption shall apply to transactions on provision (in rural
areas) of repair services to schools, pre-school institutions, boarding
schools/houses, healthcare institutions, as well as the provision of
financial aid (within the tax-free minimal income of citizens per
month per person); supply of food of own production and provision
of farming services to families with many children, labour and war
veterans and rehabilitated citizens, disabled persons, lonely old age
persons, victims of the Chernobyl disaster, and schools, pre-school
institutions, boarding houses, and health care institutions – by
agricultural commodity producers.
The Law of Ukraine "On
Value Added Tax"
subp.5.2.1 par. 5.2
17.55
15.23
21.77
—
—
—
The Law of Ukraine "On
Value Added Tax"
subpara. 5.2.4. para. 5.2
0.01
0.01
0.03
—
—
—
168
14010142
A zero rate shall apply to transactions on supply of goods (except for
excisable goods) and services (other than services provided during
lottery and entertaining games, and services on supply of excisable
goods received under commission (consignment) contract, security
agreement, trust agreement, or other civil-law contracts authorizing
the taxpayer (the consignee) to exercise the supply of goods on
behalf of another person (the commissioner) without transfer of the
ownership of such goods) which are directly manufactured by
enterprises and organisations founded by civic organisations of
disabled persons where the number of disabled individuals
employed full-time by these organisations in the previous reporting
period amounts to no less than 50 per cent of the average quantity
of full-time workers; and provided that the labour remuneration
fund for such disabled persons during a reporting period amounts to
no less than 25 per cent of the total costs of labour remuneration
attributed to costs.
The production of goods is considered direct, if the amount of
expenses incurred for recycling (processing or other transformation)
of the components, parts, and other purchased goods used in the
manufacture of such products, is not less than 8 per cent of the sale
price of the manufactured goods.
The abovementioned enterprises and organisations of public
organisations of the disabled can apply this benefit if they have a
permit to use such benefit issued by the multiagency Commission on
Operation of Enterprises and Organisations of NGOs of the Disabled
under the Law of Ukraine “On the foundations of social security of
the disabled in Ukraine.”
Subparagraph 6.2.8. of
par. 6.2. Article 6 of the
Law of Ukraine "On
Amendments to the Law
of Ukraine 'On State
Budget of Ukraine for
2005' "
64.11
62.41
91.35
—
—
—
14010359
VAT exemption shall apply to transactions on provision of
rehabilitation services by rehabilitation institutions for disabled
individuals and disabled children, having a license for the provision
of such services.
The Law of Ukraine "On
Value Added Tax" subp.
5.1.8 par. 5.1 of Article 5
—
0.17
0.04
—
—
—
14010405
Tax exemption shall apply to transactions on supply of technical and
other rehabilitation means (except vehicles), repair services and
delivery thereof; special-purpose goods, including medical products
for individual use by disabled persons and other individuals requiring
social protection, as defined by the legislation of Ukraine under the
list approved by the Cabinet of Ministers of Ukraine
Tax Code of Ukraine N
2755-VI of 2 December
2010, item a) subp.
197.1.3 par.197.1 Art.
197 Section V
—
—
—
63.21
52.91
60.95
169
14010406
14010407
14010409
14010410
14010412
Tax exemption shall apply to transactions on the supply of
components and inputs for the production of technical and other
rehabilitation means (except vehicles), special purpose goods,
including medical products for individual use by disabled persons
and other individuals requiring social protection, as defined by the
legislation of Ukraine under the list approved by the Cabinet of
Ministers of Ukraine
Tax exemption shall apply to transactions on the supply of passenger
cars for disabled persons by authorized authority funded from the
State or local budget or compulsory State insurance fund, and
transactions on their free transfer to disabled persons.
Tax Code of Ukraine N
2755-VI of 02 December
2010, item b) subpara.
197.1.3 par.197.1
Art.197 Section V
—
—
—
14.23
43.03
26.62
Tax Code of Ukraine N
2755-VI of 2 December
2010, item в)
subp.197.1.3 par.197.1
Art.197 Section V
—
—
—
5.65
13.41
—
Tax exemption shall apply to transactions on provision of health care
services by institutions having a license for the provision of such
services and delivery of rehabilitation services by rehabilitation
institutions for disabled individuals and disabled children, having a
license for the provision of such services in accordance with the law other than services described in sub-paragraphs:
a) - o)
subp.197.1.5 par.197.1 Art. 197 of Tax Code of Ukraine
Tax exemption shall apply to transactions on delivery of
rehabilitation services to disabled individuals and disabled children,
as well as on provision of spa treatment tours, rehabilitation and
recreation services on the territory of Ukraine to individuals under
18, disabled persons and disabled children.
Tax Code of Ukraine N
2755-VI of 2 December
2010, subp.197.1.5
par.197.1 Art.197
Section V
—
—
—
479.37
605.36
715.47
Tax Code of Ukraine N
2755-VI of 2 December
2010, subp.197.1.6
par.197.1 Artt.197
Section V
—
—
—
254.82
267.57
357.31
Tax exemption shall apply to transactions on supply of
accommodation services to persons staying in boarding houses for
seniors, disabled persons and disabled children, residential care
facilities for war and labour veterans, geriatric homes, and territorial
social-service centres (provision of social services).
Tax Code of Ukraine N
2755-VI of 2 December
2010, item б)
subp.197.1.7 par.197.1
Art.197 Section V
—
—
—
2.28
2.16
1.54
170
14010416
14010429
14010434
14010442
Tax exemption shall apply to transactions on publicly-funded supply
of catering services, and provision of commodities, and communal
and other social services to persons staying in rehabilitation
institutions, territorial social-service centres, institutions,
enterprises, all-Ukrainian NGOs of the disabled and their unions,
which are engaged in rehabilitation, recovery, and physical and
sports activities, monitoring centres and institutions of social
protection for the homeless, centres of social adaptation of persons
exempt from the place of imprisonment, sanatoriums for war
veterans and invalids, boarding houses for seniors, disabled persons
and disabled children, psycho neurological and specialized
institutions, boarding houses, residential care facilities for war and
labour veterans, and geriatric homes.
Tax exemption shall apply to transactions on provision of paid
services by municipal or public libraries, as well as libraries owned by
all-Ukrainian NGOs of disabled persons, including filling-in the
registration documents (cards, forms); the use of rare valuable
reference publications (in particular, overnight card); compilation of
bibliographic lists upon request; drafting fact graphic thematic factsheets.
Tax exemption shall apply to transactions on provision (in rural
areas) of repair services to schools, pre-school institutions, boarding
schools/houses, healthcare institutions, as well as the provision of
financial aid (within the tax-free minimal income of citizens per
month per person); supply of food of own production and provision
of farming services to families with many children, labour and war
veterans and rehabilitated citizens, disabled persons, lonely old age
persons, victims of the Chernobyl disaster, and schools, pre-school
institutions, boarding houses, and health care institutions – by
agricultural commodity producers.
Tax Code of Ukraine N
2755-VI of 02 December
2010, item д),
subp.197.1.7 par.197.1
Art.197 Section V
—
—
—
0.16
0.51
—
Tax Code of Ukraine N
2755-VI of 02 December
2010 subp.197.1.20
par.197.1 Art.197
Section V
—
—
—
0.36
0.32
8.00
Tax Code of Ukraine N
2755-VI of 02 December
2010 subp.197.1.24
par.197.1 Art.197
Section V
—
—
—
0.06
0.08
0.01
Tax exemption shall apply to transactions on supply of goods (except
for excisable goods) and services (other than services provided
during lottery and entertaining games, and services on supply of
excisable goods received under commission (consignment) contract,
security agreement, trust agreement, or other civil-law contracts
authorizing the taxpayer to exercise the supply of goods on behalf of
another person without transfer of the ownership of such goods)
which are directly manufactured by enterprises and organisations
founded by civic organisations of disabled persons where the
Tax Code of Ukraine N
2755-VI of 02 December
2010 par.197.6 Art. 197
Section V
—
—
—
29.15
20.00
11.51
171
number of disabled individuals employed full-time by these
organisations in the previous reporting period amounts to no less
than 50 per cent of the average quantity of full-time workers; and
provided that the labour remuneration fund for such disabled
persons during a reporting period amounts to no less than 25 per
cent of the total costs of labour remuneration attributed to the costs
pursuant to the norms on CIT taxation.
14010462
Temporarily, till 1 January 2020, a zero rate shall apply to
transactions on supply of goods (except for excisable goods) and
services (other than services provided during lottery and
entertaining games, and services on supply of excisable goods
received under commission (consignment) contract, security
agreement, trust agreement, or other civil-law contracts authorizing
the taxpayer (the consignee) to exercise the supply of goods on
behalf of another person (the commissioner) without transfer of the
ownership of such goods) which are directly manufactured by
enterprises and organisations founded by civic organisations of
disabled persons where the number of disabled individuals
employed full-time by these organisations in the previous reporting
period amounts to no less than 50 per cent of the average quantity
of full-time workers; and provided that the labour remuneration
fund for such disabled persons during a reporting period amounts to
no less than 25 per cent of the total costs of labour remuneration
attributed to costs.
14020000
14020002
—
—
—
74.93
71.19
Excise tax on excisable goods produced in Ukraine
0.73
0.33
0.76
0.33
0.52
Proportion in excise tax on excisable goods
100
100
99.84
0.02
0.02
0.73
0.33
0.76
—
—
Tax exemption shall apply to turnover on the sale of special-purpose
passenger cars for disabled persons funded by social security bodies,
and special-purpose motor vehicles (ambulance and fire units, and
vehicles used for the needs of emergency rescue services) funded
from the State and local budgets.
Tax Code of Ukraine N
2755-VI of 02 December
2010, par.8 subsection 2
Section XX
Decree of the Cabinet of
Ministers "On Excise
Tax" Art. 5
172
81.27
—
—
—
14020031
Tax exemption shall apply to transactions on sale of special-purpose
passenger cars for disabled persons, including disabled children,
funded by the State or local budgets, or compulsory social insurance
funds; and special-purpose motor vehicles (ambulance cars and
vehicles for the needs of central executive authorities implementing
the State policy on civil protection, rescue, fire and technological
safety), funded from the State and local budgets.
Tax Code of Ukraine N
2755-VI of 02 December
2010, subpara. 213.3.1.
para. 213.3 Art. 213
—
—
—
0.33
0.52
—
236.07
251.15
344.95
1 049.25
1183.64
1 369.11
The share in total revenue foregone from tax benefits
1.03
0.89
0.93
1.77
2.43
3.84
As proportion of GDP
0.02
0.03
0.03
0.08
0.08
0.09
Total revenue foregone from tax benefits for the social group of
disabled persons
173
Annex 2: State Guarantees
Table 1: State Guarantees provided from 2011 to 2013
Lender
Borrower
1
2
2011
Currency
3
4
Agreement on trust management on 21 April
2011
State Road Service of Ukraine, Agreement on
22 July 2011
Term credit agreement on 16 September
2011
USD
690,000,000
5,496,126,000
USD
376,000,000
2,997,133,600
USD
260,000,000
2,073,682,000
Energy Efficiency Project (8064-UA on 10
June 2011)
Credit agreement on 21 December 2011
USD
200,000,000
1 ,596,140,000
USD
85,000,000.
679,090,500
USD
150,000,000
1,198,455,000
12 842 172 100
Public Company “FININPRO” Bonds
Public Company “FININPRO”
Sberbank of Russia
State Road Service of Ukraine
Sberbank of Russia
Public Company “Yuzhnoye State Design
Office”
International Bank for
Reconstruction and Development
China Development Bank
Ukreximbank
Public Joint Stock Company
“LysychanskVugillya”
Amount of
guarantee in credit
in
currency
5 of
borrowing
Project title credited through loans under
State guarantees
Amount of
guarantee, UAH*
6
2012
International Bank for
Reconstruction and Development
Ukreximbank
75 349 704 679
Additional funding for the Second Export
Development Project (8089-UA on 04.10.11)
State Mortgage Institution Bonds
State Mortgage Institution
State Mortgage Institution Bonds
UAH
2,000,000,000
2,000,000,000
Public Company “FININPRO” Bonds
Public Company “FININPRO”
USD
550,000,000
4,396,150,000
China Development Bank
National Joint-stock company “Naftogaz
of Ukraine”
USD
3,656,000,000
29,222,408,000
The Export-Import Bank of China
Public Joint-stock Company “State Food
and Grain Corporation of Ukraine”
Public Joint-stock Company “State Food
and Grain Corporation of Ukraine”
Agreement on trust management on 7
December 2012
National Joint-stock company “Naftogaz
of Ukraine”, Master credit agreement
on 25 December 2012
Master credit agreement on 26
December 2012 №201209
Master credit agreement on 26
December 2012 №201210
USD
1,500,000,000
11,989,500,000
USD
1,500,000,000
11,989,500,000
Credit agreement on 11 December
2012 №1/1212000351
EUR
53,574,689
553,691,679
The Export-Import Bank of China
Deutsche Bank AG Schaft
Affiliated Company “Ukrtransgaz”
National Joint-stock company
“Naftogaz of Ukraine”
174
1
2
State Road Service of Ukraine Bonds State Road Service of Ukraine
3
State Road Service of Ukraine Bonds
4
UAH
Amount of
Amount of
guarantee in credit
guarantee, UAH*
in
currency
5 of
6
borrowing
14,000,000,000
14,000,000,000
2013
State Road Service of Ukraine Bonds State Road Service of Ukraine
21 897 517 549
State Road Service of Ukraine Bonds
UAH
5,000,000,000
5,000,000,000
UAH
1,500,000,000
1,500,000,000
UAH
113,500,000
113,500,000
State Mortgage Institution Bonds
Socio-economic Development Project
“Construction of the first phase of the
Dniester PSP including three units”
Department of Energy, Transport and
Socio-economic Development Project
Communication of Vinnytsya City Council “Updating rolling stock of the bus and trolley
parks”
State Mortgage Institution
State Mortgage Institution Bonds
UAH
5,000,000,000
5,000,000,000
National Joint-stock company
“Naftogaz of Ukraine” Bonds
National Joint-stock company
“Naftogaz of Ukraine”
UAH
4,800,000,000
4,800,000,000
Public Joint-stock Company “State
Savings Bank of Ukraine”
National Agency for Preparation and
Hosting the Final Football Championship
the EURO-2012 and implementation of
infrastructure projects in Ukraine
UAH
644,274,031
644,274,031
UAH
198,843,518
198,843,518
UAH
36,400,000
36,400,000
UAH
608,000,000
608,000,000
USD
500,000,000
3,996,500,000
Lender
Public Joint-Stock Company “State
Savings Bank of Ukraine”
Public Joint-Stock Company JointStock Bank “Ukrgasbank”
Public Joint-Stock Company JointStock Bank “Ukrgasbank”
Public Joint-Stock Company JointStock Bank “Ukrgasbank”
Public Joint-Stock Company JointStock Bank “Ukrgasbank”
Open Joint-Stock Company
“Gazprombank”
Borrower
Project title credited through loans under
State guarantees
Ministry of Energy and Coal Industry of
Ukraine
National Joint-stock company “Naftogaz of
Ukraine” Bonds
Socio-economic Development Project
“Construction of modern diagnostic and
treatment complex of the National Children's
Specialized Hospital “Okhmatdyt”, 28/1
Chornovil Street, Shevchenko district, Kyiv”
Capital Construction Department of
Socio-economic Development Project
Kherson City Council
“Construction of the overpass on Admiral
Senyavin Avenue - Zalaegerszeg Street,
Capital Construction Department of
Socio-economic
Development Project
Kherson”
Vinnytsya City Council
“Construction of the Keletska Street and
tram line from Kvyateka Street to the
bus station
in Vinnytsya”
State Agency for Investment and National “West”
Socio-economic
Development
Project
Projects of Ukraine
“Implementation of the second phase of the
National project “Open World” regarding
technical support for schools by training
equipment”
National Joint-stock company
National Joint-stock company “Naftogaz of
“Naftogaz of Ukraine”
Ukraine”, Additional agreement on 27
December 2013
Currency
Source: Information on given state guarantees in 2004-2013 //Ministry of finance of Ukraine [web resource]. –Access :
http://www.minfin.gov.ua/control/uk/publish/archive/main?cat_id=74685Дані
175
Annex 3: Support to the Coal sector
Table 1: Support to Coal Sector from the State Budget 2002 to 2013 , UAH million.
Budget
classification
code
Programme
2002
2003
2004
2005
2006
2,524.14
3,625.52
4,628.13
4,247.77
915.30
2007
2008
2009
2013
2010
2011
2012
1,542.94 8,083.75 5,587.76
4,570.88
х
х
x
4,265.84 5,754.08 7,496.70 10,474.33
7,681.13
х
х
x
1100000
Ministry of Fuel and Energy of Ukraine
1300000
Ministry of Coal Industry of Ukraine
х
х
х
х
1100000
Ministry of Energy and Coal Industry of
Ukraine
х
х
х
х
х
х
х
х
х
1102000
State Department of Coal Industry
2,288.29
2,759.29
х
х
х
х
х
х
х
618.54
622.42
676.47
754.37
757.17
831.68
667.40
788.70
1,059.20
1,597.28 1,078.24
930.00
830.98
880.39
1,035.80
1,953.55 2,792.96 4,843.02 4,663.92
5,807.27
6,710.21 10,171.84 13301,8
4
508.19
1,092.04
1,211.66
1,170.88
1,186.45 1,677.58 1,519.23
1101070 /
1301070 /
1101180 /
1102060
Restructuring of coal and peat
industries, including repayment of
arrears for the electricity consumed in
previous periods
1101110 /
1301080 /
1301090 /
1102090
State support to coal mining companies
to partially cover the costs of
marketable finished coal products
1301100 /
1101210 /
1102100
State support to mining companies
extracting coal, lignite (brown coal) and
peat for construction, technical
upgrading and refurbishment of mining
equipment
176
х
х
11,251.88 17,409.20
х
х
15741,2
6
x
х
1178,42
x
1301110
Cheaper loans for construction and
technical modernization of coal, lignite
(brown coal) and peat enterprises
х
х
х
х
х
2.40
х
х
х
х
х
1101160 /
1301120 /
1101220 /
1102120
Labor protection and improving
occupational safety at mining
enterprises, namely their equipment
with modern mine air control devices
and facilities for degassing parameters
control
52.79
79.82
51.23
60.11
65.47
104.37
82.08
10.73
х
64.47
40.46
1301140 /
1101230 /
1102130
Participation in the acquisition of highefficiency energy saving compressor and
electrical equipment for coal mines
17.52
20.97
23.98
20.22
9.45
х
х
х
х
х
х
1301170
Repayment of outstanding debt for the
electricity consumed by State coal
mining companies in previous periods,
including companies that are preparing
for liquidation, and coal mining
corporations 100%-owned by the State
х
х
х
х
х
х
х
х
140.01
х
х
1101200 /
1301180
State support for the construction of
coal and peat mining enterprises
х
х
х
х
х
х
х
444.67
336.86
347.82
1,293.21
1301190
Financing of investment projects on
technical modernization of coal and
peat mining enterprises
х
х
х
х
х
х
х
246.82
х
х
х
Technical upgrading of public carbon
and peat mining enterprises, in
particular through cheaper loans
received in 2010-2011, and funding of
programmes for mining equipment
renovation
х
1101210
x
37,10
x
x
342,80
х
х
х
х
х
х
х
х
1,371.39
х
x
177
1101270
1101360
1101390
State support to coal mining companies
directed for repayment of wage arrears
to employees of coal mining enterprises
for the previous years, except those
under liquidation
Cheaper loans for stockpiling of solid
fuel for thermal power plants
Construction of generating units at
nuclear, hydro- and other power plants,
thermal power stations; construction
and reconstruction of power lines and
substations, and cheaper loans for
stockpiling of solid fuel for thermal
power plants
х
х
721.19
х
х
х
х
х
х
х
х
х
х
х
16.52
11.94
х
х
х
х
х
х
x
x
x
х
х
х
х
х
24.62
328.24
481.26
522.25
47.46
223.19
Source: Reports on the state budget expenditures by program classification// State Treasure Service of Ukraine [web resource]. – Access:
http://www.treasury.gov.ua/main/uk/doccatalog/list?currDir=146477Звіти Reports on the execution of the State Budget of Ukraine by expenditures according to programme
classification of the Consolidated Financial Statements’ Department of the State Treasury of Ukraine.
178
Annex 4: State Investment Projects
Table 1: State investment projects (programmes) involving loans from foreign governments, foreign banks and international
financial institutions in 2011
Programme
code
Title of the programme
1
2
Title of the lender and investment
programme (project) implemented at the
expense of the loan (credit)
3
Programme indicators
Expenses (UAH)
Curren
cy
Total amount of
loan (units)
Planned
Actual
4
5
6
7
Lender: International Bank for
Reconstruction and Development:
1101600
Reconstruction of hydropower plants
owned by PJSC "Ukrhydroenergo" (second
stage)
Hydro Power Plants Rehabilitation Project
USD
1101630
1101640
106,000,000
Implementation of the Energy Sector
Reform and Development Programme
Improving the reliability of electricity
supply in Ukraine
84,436,200.00
60,761,064.44
9,854,500.00
2,199,242.78
Electricity Transmission Project
USD
200,000,000
235 000 000,00
205,593,100.18
1101600
Reconstruction of hydropower plants
owned by PJSC "Ukrhydroenergo" (second
stage)
Extra funding for the implementation of
Hydro Power Plants Rehabilitation Project
179
USD
60,000,000
77,146,900.00
37,826,810.70
Table 2: State investment projects (programmes) involving loans from foreign governments, foreign banks and international
financial institutions in 2012
Programme
code
Title of the programme
1
2
Lender and investment project implemented at
the expense of the loan (credit)
Programme indicators
Expenses (UAH)
Currency
Total amount of
loan (units)
Planned
Actual
3
4
5
6
7
Lender: International Bank for Reconstruction and
Development:
Hydro Power Plants Rehabilitation Project
1101600
Reconstruction of hydropower plants
owned by PJSC "Ukrhydroenergo"
1101640
Improving the reliability of electricity
supply in Ukraine
Electricity Transmission Project
1101600
Reconstruction of hydropower plants
owned by PJSC "Ukrhydroenergo"
Extra funding for the implementation of Hydro
Power Plants Rehabilitation Project
USD
USD
USD
129 898 132,55
106,000,000
100,000,000.00
200,000,000
490,765,000.00
334,650,143.93
60,000,000
52,000,000.00
16,099,212.50
Lender - European Bank for Reconstruction and
Development:
1101600
Reconstruction of hydropower plants
owned by PJSC "Ukrhydroenergo"
Hydro Power Plants Rehabilitation Project
EUR
200,000,000
22,000,000.00
21,207,028.00
1101600
Reconstruction of hydropower plants
owned by PJSC "Ukrhydroenergo"
The "Ukraine - Hydro Power Plants Rehabilitation
Project of PJSC "Ukrhydroenergo"
EUR
200,000,000
6,000 000.00
0.00
EUR
65,500,000
8,560,000.00
0.00
Lender: Credit Institution for Reconstruction:
1101680
Improving the efficiency of electricity
transmission (modernization of
substations)
Improving theEfficiency of Electricity Transmission
Project (modernization of switches)
180
Table 3: State investment projects (programmes) involving loans from foreign governments, foreign banks and international
financial institutions in 2013
Programme
code
Title of the programme
1
2
Lender and investment project implemented at
the expense of the loan (credit)
Programme indicators
Currency
Total amount of
loan (units)
3
4
5
Expenses (UAH)
Planned
Actual
6
7
Lender : International Bank for Reconstruction
and Development:
1101600
Reconstruction of hydropower plants
owned by PJSC "Ukrhydroenergo"
Hydro Power Plants Rehabilitation Project
1101640
Improving the reliability of electricity
supply in Ukraine
Electricity Transmission Project
1101600
Reconstruction of hydropower plants
owned by PJSC "Ukrhydroenergo"
Extra funding for the implementation of Hydro
Power Plants Rehabilitation Project
USD
106,000,000
141,311,500,00
128,923,378.52
200,000,000
350,000,000.00
344,238,264.81
60,000,000
144,336,000.00
65,023,752.00
EUR
200,000,000
200,474,000.00
0.00
EUR
200,000,000
64,809,200.00
0.00
EUR
65,500,000
30,000,000.00
0.00
USD
USD
Lender: European Bank for Reconstruction and
Development:
1101600
Reconstruction of hydropower plants
owned by PJSC "Ukrhydroenergo"
1101600
Reconstruction of hydropower plants
owned by PJSC "Ukrhydroenergo"
Hydro Power Plants Rehabilitation Project
Creditor - The European Investment Bank:
The "Ukraine - Hydro Power Plants Rehabilitation
Project of PJSC "Ukrhydroenergo"
Creditor - Credit Institution for Reconstruction:
1101680
Improving the efficiency of electricity
transmission (modernisation of
substations)
Improving Efficiency of Electricity Transmission
Project
(modernisation of sub-stations)
181
Annex 5 Tax benefits in the energy sector
Table 1: Number of industrial enterprises involved in economic activities classified as energy, coal mining, oil and oil processing,
number of employees at these enteprises
Code of
Activities
(КВЕД)
2010
Industry
Year
Number of entities
Number of employed
number
%
thousand
%
Including
Number of contracted
persons
thousand
%
B+C+D+E
2010
2011
2012
2013
47,827
47,479
43,356
49,130
100
100
100
100
3,091.8
3,045.9
3,026.4
2,924.9
100
100
100
100
3,082.5
3,037.1
3,014.4
2,912.8
100
100
100
100
B
2010
2011
2012
2013
1,629
1,560
1,612
1,918
3.4
3.3
3.7
3.9
507.2
488.0
483.0
474.5
16.4
16.0
16.0
16.2
506.6
487.4
482.6
473.8
16.4
16.0
16.0
16.3
05
2010
2011
2012
2013
280
314
357
399
0.6
0.7
0.8
0.8
313.7
290.8
305.9
300.8
10.2
9.5
10.1
10.3
313.6
290.7
305.9
300.6
10.2
9.6
10.1
10.3
Extractionof raw oil and natural gas
06
2010
2011
2012
2013
76
79
101
119
0.2
0.2
0.3
0.2
56.7
56.3
55.7
55.6
1.8
1.9
1.9
1.9
56.7
56.3
55.7
55.6
1.8
1.8
1.9
1.9
Raw oil extraction
06.1
2010
2011
2012
2013
37
34
39
41
0.1
0.1
0.1
0.1
30.3
29.3
28.3
27.2
1.0
1.0
1.0
0.9
30.3
29.3
28.3
27.2
1.0
0.9
1.0
0.9
Natural Gas Extraction
06.2
2010
2011
2012
2013
2013
39
45
62
78
112
0.1
0.1
0.2
0.1
0.2
26.4
27.0
27.4
28.4
5.2
0.8
0.9
0.9
1.0
0.2
26.4
27.0
27.4
28.4
5.2
0.8
0.9
0.9
1.0
0.2
09
2010
2011
2012
2013
208
136
108
132
0.4
0.3
0.2
0.3
3.3
15.2
4.1
4.6
0.1
0.5
0.1
0.2
3.3
15.2
4.0
4.5
0.1
0.5
0.1
0.2
09.1
2010
2011
2012
2013
50
51
56
82
0.1
0.1
0.1
0.2
1.5
1.5
1.5
1.9
0.0
0.1
0.0
0.1
1.5
1.5
1,4
1.9
0.0
0.1
0.0
0.1
19
2010
2011
2012
158
160
151
0.3
0.3
0.3
39.7
36.9
34.9
1.3
1.2
1.1
39.7
36.9
34.9
1.3
1.2
1.1
Mining and deposit devlopment
Coal and Lignite Mining
Prrovision of ancillary services for minimg and deposit development
Provision of ancillary services for extractionof oil and natural gas
Producution of coke and by-products of oil processing
182
2013
162
0.3
34.0
1.2
33.9
1.2
Productionof coke
19.1
2010
2011
2012
2013
26
24
19
18
0.0
0.0
0.0
0.0
24.7
22.4
21.7
19.4
0.8
0.7
0.7
0.7
24.7
22.4
21.7
19.3
0.8
0.7
0.7
0.7
Oil products
19.2
2010
2011
2012
2013
2010
2011
2012
2013
2010
2011
2012
2013
2010
2011
2012
2013
2010
2011
2012
2013
132
136
132
144
1,256
1,313
1,334
1,723
425
463
538
819
229
251
216
235
602
599
580
669
0.3
0.3
0.3
0.3
2.6
2.8
3.1
3.5
0.9
1.0
1.3
1.7
0.5
0.5
0.5
0.5
1.2
1.3
1.3
1.3
15.0
14.5
13.2
14.6
431.9
427.0
421.5
417.0
244.8
227.6
224.4
222.3
86.5
88.6
88.9
87.8
100.6
110.8
108.2
106.9
0.5
0.5
0.4
0.5
14.0
14.0
13.9
14.3
7.9
7.5
7.4
7.6
2.8
2.9
2.9
3.0
3.3
3.6
3.6
3.7
15.0
14.5
13.2
14.6
431.8
426.9
421.2
416.8
244.8
227.5
224.2
222.2
86.5
88.6
88.9
87.8
100.5
110.8
108.1
106.8
0.5
0.5
0.4
0.5
14.0
14.1
14.0
14.3
7.9
7.5
7.4
7.6
2.8
2.9
3.0
3.0
3.3
3.7
3.6
3.7
Supply of electricity, gas, heat, and conditioned air
D
Supply, trasportation adn distributionof electric power
35.1
Productionof gas, distribution of gas fuel by local pipelines
35.2
Supply of steam, hot water and conditioned air
35.3
Source: Information by State Statistics Service of Ukraine, www.ukrstat.gov.ua
183
Table 2. Indicators of consolidated budget revenue foregone due to tax benefits for energy sector from 2010 to 2013, UAH million.
Budgetary code
TCU provision
Tax Benefit
2010
2012
2013
1 387,17
1,995.89
1,373.15
х
263.46
974.97
760.96
x
22,71
x
x
х
0.08
2.80
0.45
х
121.17
454.00
593.59
х
245.25
15.48
17.83
х
733.07
548.00
0.01
Corporate income tax
11020268
154.8
Section ІІІ
11020170
11020269
Law "On
Corporate
Income Tax",
para 5.2.16,
point 5.2
Deductible expenses include the amount of costs associated with search and settlement of
oil and gas fields (excluding the cost of construction of any wells used to develop oil and gas
fields, as well as other costs associated with the acquisition (manufacture) of fixed assets,
which are subject to depreciation under the terms of Article 8 of the Law).
158.1 and
158.3
Tax relief for 80 per cent of the income derived from the sale of goods produced on the
customs territory of Ukraine according to a list approved by the Cabinet of Ministers of
Ukraine, specifically: equipment using renewable energy; materials, raw materials,
equipment and its components to be used within production of energy from renewable
sources; energy saving equipment, materials and products ensuring saving and rational use
of energy resources; devices for measurement, control and management of fuel and energy
resources; equipment for production of alternative fuels.
Section ІІІ
11020275
Income tax exemption for energy enterprises within expenditures envisaged under the
investment programmes approved by the National Energy Regulatory Commission of Ukraine
to finance capital construction (reconstruction, modernization) of international, trunk and
distribution (local) networks, and/or for repayment of loans received to finance the above
objectives.
item в) par.17
(4)
Tax exemption for operating profits of generators of electricity (class 40.11 group 40 KVED
trade classification DK 009:2005) exclusively from renewable energy sources;
2011
Section ХХ
11020281
15 (4)
Tax exemption for income of producers of biofuels received from sales of biofuel;
Section ХХ
11020282
15(4)
Section XX
Tax exemption for combined heat and power producers using biofuels, and/or producers of
thermal energy using biofuels;
184
11020283
15 (4)
Section ХХ
Tax exemption for income of producers of machinery and equipment defined in Article 7 of
the Law of Ukraine “On Alternative Fuels” for the purpose of modernization of installations
and vehicles, including automotive agricultural machinery and electric power facilities using
biological fuels, derived from sales of such machinery, equipment and facilities produced on
the territory of Ukraine.
х
1.43
0.64
0.30
614.52
1,463.65
0.03
х
39.37
0.01
0.03
х
575.15
1,463.64
х
540.40
974.76
2,850.83
Value added tax:
14010457
14010477
Item а) par.2
Sub-section 2
section XX
Temporarily, until January 1, 2019, the following transactions shall be exempted from value
added tax: transactions related to the supply of the machinery and equipment defined in
Article 7 of the Law of Ukraine “On Alternative Fuels” on the territory of Ukraine.
Para.22
Subsection 2
Section XX
Temporarily, during the period from July 1, 2011 till December 31, 2012 the following
transactions shall be exempted from value added tax: related to the supply of natural gas
under the code UKTZED (Ukrainian Classification of Foreign Trade Items) 2711 21 00 00
(excluding the costs of transportation, distribution and supplying) and imported into the
customs territory of Ukraine by Public Joint Stock Company "National Joint-Stock Company
“Naftogaz of Ukraine”" (except for gas supply to the population, to pubic institutions and
organisations financed through the State budget and/or local budgets, and
Zero VAT shall be applied to sales by enterprises producing heat energy for households and
other consumers that are not subject to this tax.
Excise tax:
14020035
213.3.11
Para. 213
14020042
229.1.1
Para. 229
14030031
229.3.1
Para. 229
Tax exemption is established for transactions in sales of LPG at specialized auctions for the
needs of households according to the procedure defined by the Cabinet of Ministers of
Ukraine.
х
12.62
68.85
77.87
Zero tax rate is applied per litre of 100-% ethanol produced from bioethanol used for the
production of biofuel.
х
414.14
752.12
2,772.96
Tax exemption shall be applied to distillates (UKTZED code 2710 11 11 00) and heavy
distillates (UKTZED code 2710 19 31 30) and imports of raw materials for the production of
ethylene without payment of excise tax.
х
113.65
153.79
х
4,434.30
4,224.01
The total budget revenue foregone in the electricity sector
Source: According to SFS reports ДФС 13-ПВ, 2.1-В.
185
2 542,09
Table 3: Budget Support for the Coal Industry from 2007 to 2014 according to purposes ( UAH million)
2007
2008
2009
2010
2011
2012
2013
2014
Actual
Actual
Actual
Actual
Actual
Actual
Actual
Planned
Restructuring of coal and peat mining enteprises
831.7
668.0
788.7
1,092.1
1,597.3
1,078.3
1,178.4
943.1
Finanicng of resque operations at the coal mining
eneterpises
Financing of cost (partial) coal production
255.2
280.2
196.1
274.8
378.6
414.4
430.2
402.0
2,793.0
4,843.0
4,663.9
5,807.3
6,710.2
10,171.8
13,301.8
10,988.0
Capital Investments, techical upgrading, major repairs of
the mining machinery, covarage the cost of borrowings by
coal mining enterprises
1,693.4
1,519.3
691.5
336.9
1,719.2
1,232.2
342.8
180.0
Fianancing repayment of outstanding debts of State owned
enterprises for electricity consumed in previous periods,
including debts of enterprises subject to liquidation and
companies whose 100% of share capital is owned by the
State
0.0
0.0
0.0
140.0
0.0
0.0
0.0
0.0
Safety of labour and labour protection measures at the
coal mining enterpises (including brown coal mining) in
particualr degasation of the coal deposits
105.1
82.1
10.7
0.0
64.5
40.5
37.1
65.0
Repayment of arrears on wages for coal miners
Financing of transfers of social assets from balance sheets
of coal mining enteprises to local governance
0.0
45.0
0.0
25.0
24.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Source: Information by the Ministry of Finance of Ukraine
186
ANNEX 6: Legal bases for support to aircraft construction and shipbuilding
Table 1: Legislation providing for public support to the aircraft construction sector
Legislative Acts
Tax Code of Ukraine (N 2755-VI of 2
December 2010)
SECTION XX. TRANSITIONAL PROVISIONS
Key provisions
4. Specific aspects of corporate income tax collection
18. Temporarily, starting from 1 January 2011 and for subsequent period of 10 years, tax exemptions shall be applied to the profits of the
aircraft building industry, received from the following core activities: class 30.30 group 30.3 section 30 of the Classifier of Economic Activities;
KVED trade classification DK 009:2010; as well as the profits from research & development activities and research and design activities (class
72.19 group 72.1 Section 72 KVED DK 009: 2010) performed to meet the needs of aircraft industry;
Law of Ukraine “On the Development of
the Aircraft Industry” N 2660-III of 12 July
2001
Article 1. The aircraft industry shall be a priority sector of Ukraine’s economy and research & development activities dedicated to the creation
of new aircrafts shall be included into the category of critical technologies.
Article 3. Temporarily, until January 1, 2016, in order to create appropriate conditions for the compliance with Ukraine’s obligations under
international treaties (agreements), aircraft building undertakings, subject to the provisions of Article 2 of this Law, shall enjoy special import
duty regime in respect of goods under the codes of Ukrainian Commodity Classification of Foreign Economic Activity (UCCFEA) in accordance
with the provisions of paragraph "p" of Article 19 of the Law of Ukraine "On Unified Customs Tariff", as well as special regimes for settlement in
foreign currency according to the provisions of Article 6 of the Law of Ukraine "On the Procedure of Settlements in Foreign currency", as well as
specific regimes in relation to land tax, value added tax and corporate income tax, as set out by the tax laws (Article 3 of the Law of Ukraine N
1814-IV of 20 January 2010).
Article 3. For the period from 1 January 2013 until 1 January 2017, State subsidies shall be introduced to support sales of domestically produced
aviation equipment through the mechanism of cheaper loans on the basis of partial compensation of interest rates for loans nominated in the
national currency and received by relevant undertakings from commercial banks to purchase such an equipment. Compensation shall be
granted to aircraft equipment operators located on the territory of Ukraine exclusively to equip domestically produced aircrafts, and to
compensate the interest actually paid during the current budget period in the amount of the discount rate of the National Bank of Ukraine, as
effective on the date of payment of the such interest.
Resolution of the Cabinet of Ministers of
Ukraine “On approving the list of
enterprises in the aircraft building industry
subject to interim support measures
introduced by the government”
More specific citation
Company Register
Code
07587058
16502206
16502169
01128475
Company name
The Autonomous Republic of Crimea
State Enterprise "Evpatoria Aircraft Repair Plant"
State Enterprise "Research Centre “Helicopter”"
State Enterprise "Scientific and Research Institute of Aeroelastic Systems"
Vinnitsa region
State Enterprise "Vinnitsa Aviation Plant"
187
Legislative Acts
08029701
14311614
14308368
14312921
14307794
07917635
25221966
14307529
01128297
14315150
14308552
14308109
14307357
14307274
14312134
08215600
31463293
07684556
09794409
07756801
07705790
12602750
14308894
14310052
Key provisions
Volyn region
State Enterprise "Lutsk Repair Plant “Motor “"
Dnepropetrovsk region
PJSC "Dnepropetrovsk Aggregate Plant"
State Enterprise "Production Association Yuzhny Machine-Building Plant
named after A. Makarov
Zaporizhia region
State Enterprise "Zaporizhia Machine-Building Design Bureau
“Progress” named after Academician A.G. Ivchenko"
PJSC "Motor Sich"
State Enterprise "Zaporizhia Aviation Repair Plant “MiGremont”"
Zaporizhia Machine-Building Plant named after V. Omelchenko of
PJSC "Motor Sich"
Kyiv
State Enterprise "Antonov"
State Enterprise "Civil Aviation Plant 410"
State Enterprise "Research Institute “Buran”"
Public Joint Stock Company "Ukrainian Scientific Research Institute of Aviation Technology"
Official government enterprise "Radiovymiryuvach"
Official government enterprise special instrumentation plant "Arsenal"
PJSC "Kyiv Plant “Radar”"
PJSC "Scientific and technical complex “Elektronprylad”"
Lugansk region
State Enterprise "Lugansk Aircraft Repair Plant"
Private Joint Stock Company "Pervomajskiy Mechanical Plant"
Lviv region
State Enterprise "Lviv State Aircraft Repair Plant,"
Mykolaiv region
State Enterprise "Mykolaiv Aircraft Repair Plant" “NARP"
Odessa region
State Enterprise "Odessa Aviation Plant"
Sevastopol
State Enterprise "Sevastopol Aviation Enterprise"
Sumy region
State Enterprise "Konotop Aircraft Repair Plant “Aviakon”"
Kharkiv region
Kharkiv State Aircraft Manufacturing Enterprise
State Enterprise "Kharkiv Engineering Plant “FED”"
188
Legislative Acts
14308730
14310431
14309497
14309847
14315552
08305644
22987900
22794124
Key provisions
State Scientific and Production Enterprise "Kommunar"
State Enterprise "Kharkiv Aggregate Design Bureau"
Private Joint Stock Company “Aviacontrol”"
Public Joint Stock Company “Volchanskiy Aggregate Plant”"
Public Joint Stock Company “FED”"
State Enterprise “Chuguyiv Aircraft Repair Plant”"
Khmelnitsky region
State Enterprise "Novator"
Cherkassy region
State Enterprise "Orizon-Navigation"
189
Table 2: Legislative basis for public support to the shipbuilding sector
Legislative acts
The Tax Code of Ukraine N 2755 - VI of 02
December 2010
Key provisions
4. Specific aspects of corporate income tax collection
SECTION XX. TRANSITIONAL PROVISIONS
17. Temporarily, starting from 1 January 2011 and for subsequent period of 10 years, tax exemptions shall be applied to the profits of
shipbuilding industry received from the following core activities: class 35.11 group 35 KVED DK 009:2005;
Law of Ukraine “On Conducting an
economic experiment in providing State
support to shipbuilding Industry” N 5209 VI of 06 September 2012
Article 1. The shipbuilding industry shall be recognized as a priority sector of Ukraine’s economy and an economic experiment aimed to
creation of necessary conditions for the shipbuilding industry in Ukraine to boost production and increase revenues to the State budget
through higher efficiency and competitiveness of shipbuilding output shall be conducted during the period from 1 January 2013 until 1
January 2023.
Article 3. The State support to the shipbuilding industry shall be implemented in the following directions:
1) creating conditions for restoring the competitiveness of shipbuilding enterprises;
2) providing relevant resolutions by the Cabinet of Ministers of Ukraine to issue State guarantees to foreign governments, banks, international
financial institutions on loans in hard currencies, as well as on commitments to foreign customers under economic agreements (contracts);
3) providing cheaper loans through partial compensation of interest rates on loans received from commercial banks up to the level of the
discount rate of the National Bank of Ukraine as of the date of payment of interest on loans received;
4) granting tax and duty exemptions and /or introduction of special tax regimes according to procedures prescribed by the Tax Code of
Ukraine;
5) providing for VAT and customs duty exemptions in accordance with the customs law of Ukraine for imports to the customs territory of
Ukraine of goods (products) to be used for construction, repair and modernization of ships and other floating structures, provided that such
goods are not produced by enterprises in Ukraine or, if produced, do not meet the certification requirements by international classification
societies or under requirements defined by customers under contracts for sea and river vessels and other floating structures;
6) promoting higher wages in the industry, including due to reduced level of social taxation on the payroll;
7) increasing the scope of public contracts, including State defence orders;
8) promoting, in the manner prescribed by law, the exports of shipbuilding products;
9) providing other forms of Government support to the shipbuilding industry, not prohibited by the legislation of Ukraine and international
agreements ratified by the Verkhovna Rada of Ukraine.
190
Legislative acts
Key provisions
Article 4. The amounts of fines, penalties and financial sanctions due to the State budget and State target funds, those accrued on the tax
arrears of taxes and duties (mandatory payments), having been accounted by enterprises of the shipbuilding industry as of 1 January 2013,
shall be written off according to the procedure established by the Tax Code of Ukraine.
The Law of Ukraine "On Collection and
Accounting of a Consolidated Social
Insurance Duty" (Official Journal of the
Verkhovna Rada of Ukraine, 2011., № 2-3,
p. 11):
Law of Ukraine “On State Support for the
Shipbuilding Industry of Ukraine” N 774/97
of 23 December 1997
Paragraph 1 of Article 7 shall be amended by adding paragraph four as follows:
"For the period up to 1 January 2023 taxpayers referred to in subparagraph 7 of paragraph 1 of Article 4 of this Law and qualified as
shipbuilding enterprises (class 30.11 group 30.1 section 30, class 33.15 group 33.1 section 33 KVED DK 009:2010) shall be exempted from
payment of the consolidated social duty in the amount paid by employers during the first five days of temporary disability and benefits paid
by the Social Insurance Fund for Temporary Disability ";
This Law aims to create conditions for attracting foreign investment; for maintenance, development and effective use of the existing
production, scientific and export potential of the shipbuilding industry of Ukraine; as well as for the promotion of economic interests of
Ukrainian enterprises in growing output.
Article 1. The shipbuilding industry shall be recognized as a priority sector of Ukraine's economy and the Cabinet of Ministers of Ukraine shall
act on behalf of the State in provision of guarantees for shipbuilding enterprises to secure their obligations under loans provided by foreign
governments, banks, international financial institutions, as well as commitments to foreign customers under foreign trade agreements
(contracts).
191
ANNEX 7: Legal bases for support to the civil aviation sector
Legal framework for support of the civil aviation sector (air transportation services and airports)
Year of
adoption
Title
Approved or
Repealed by
Official publication
2011
Rules of certification of the ground-based radio technical
support in civil aviation of Ukraine
Order of the Ministry of Infrastructure of Ukraine on25.05.2011
№ 121,registered in the Ministry of Justice of Ukraine on
14.06.2011 № 701/19439
Official Bulletin of Ukraine, 01.07.2011
2011, № 47, p. 301 Article 1932, Code of the Act
57196/2011
2011
On amendments to the Rules of technical exploitation of
the ground-based radio technical support in civil aviation
of Ukraine
Order of the Ministry of Infrastructure of Ukraine on 27.07.2011
№ 239, registered in the Ministry of Justice of Ukraine on
11.08.2011 № 967/19705
Official Bulletin of Ukraine, official edition on
26.08.2011 2011, № 63, p. 64 Article 2515, Code of
the Act 57998/2011
2011
On approval of the Rules for certification of
meteorological airport equipment
Order of the Ministry of Infrastructure of Ukraine on 24.05.2011
№ 117, registered in the Ministry of Justice of Ukraine on
16.06.2011 № 716/19454
Official Bulletin of Ukraine, official edition on
11.07.2011 2011, № 50, p. 57 Article 1995, Code of
the Act 57329/2011
2011
On amendments to the Rules of certification of entities
providing air navigation services
Order of the Ministry of Infrastructure of Ukraine on
28.11.2011 № 575, registered in the Ministry of Justice of Ukraine
on 15.12.2011 № 1456/20194
Official Bulletin of Ukraine, official edition on
29.12.2011 2011, № 99, p. 270 Article 3653, Code of
the Act 59644/2011
2011
On approval of Rules for air traffic services using
surveillance systems
Order of the Ministry of Infrastructure of Ukraine on 07.11.2011
№ 521, registered in the Ministry of Justice of Ukraine on
01.11.2011 № 1382/20120
Official Bulletin of Ukraine, official edition on
19.12.2011 2011, № 96, p. 194 Article 3512, Code of
the Act 59492/2011
2011
On approval of the Rules of providing data on the air
traffic service
Order of the Ministry of Infrastructure of Ukraine on 28.05.2012
№ 277, registered in the Ministry of Justice of Ukraine on
14.06.2012 № 958/21270
Official Bulletin of Ukraine, official edition on
06.07.2012 2012, № 49, p. 96 Article 1932, Code of
the Act 62215/2012
2011
Rules of flying civil aircrafts in the airspace of Ukraine
Order of the Ministry of Infrastructure of Ukraine on 28.11.2011
№ 478, registered in the Ministry of Justice of Ukraine on
21.11.11 № 1327/20065
Official Bulletin of Ukraine, official edition on
16.12.2011 2011, № 95, p. 129 Article 3471, Code of
the Act 59321/2011
2012
Regulation on rescue and fire fighting services support
for the civil aviation of Ukraine
Order of the Ministry of Infrastructure of Ukraine on 27.08.2012
№ 525, registered in the Ministry of Justice of Ukraine on
19.09.2012 №1613/21925
Official Bulletin of Ukraine, official edition on
19.10.2012 2012, № 77, p. 284 Article 3142, Code of
the Act 63727/2012
192
2012
Procedure of confirmation of objects’ location and
elevation at airfield environs and objects whose
activities may affect the safety of flights and operation of
radio technical equipment of the civil aviation
On amendments to Rules for transportation of
commodities
Order of the Ministry of Infrastructure of Ukraine on 30.11.2012
№ 721, registered in the Ministry of Justice of Ukraine on
24.12.2012 №2147/22459
Official Bulletin of Ukraine, official edition on
15.01.2013 2013, № 1, p. 123 Article 28, Code of the
Act 65209/2013
Order of the Ministry of Infrastructure of Ukraine on 30.11.2012
№ 728, registered in the Ministry of Justice of Ukraine on
19.12.2012 №2118/22430
Official Bulletin of Ukraine, official edition on
08.01.2013 2012, № 100, p. 201 Article 4069, Code
of the Act 65150/2012
2012
On approval of the Rules of air transportation of
passengers and baggage
Order of the Ministry of Infrastructure of Ukraine on 30.11.2012
№ 735, registered in the Ministry of Justice of Ukraine
№2219/22531
Official Bulletin of Ukraine, official edition on
25.01.2013 2013, № 4, p. 303 Article 136, Code of
the Act 65382/2013
2012
On approval of the Rules of certification of the civil
aviation educational institutions of Ukraine on training,
retraining, confirmation / restoration and improvement
of the ground service staff qualification
Order of the Ministry of Infrastructure of Ukraine on 26.02.2013
№ 118, registered in the Ministry of Justice of Ukraine on
20.03.2013 №446/22978
Official Bulletin of Ukraine, official edition on
16.04.2013 2013, № 27, p. 108 Article 931, Code of
the Act 66618/2013
2012
Certification requirements to the ground-based radio
technical support in civil aviation of Ukraine
Order of the Ministry of Infrastructure of Ukraine on25.05.2011
№ 122, registered in the Ministry of Justice of Ukraine on
14.06.2011 №702/19440
Official Bulletin of Ukraine, official edition on
01.07.2011 2011, № 47, p. 307 Article 1933, Code of
the Act 57198/2011
2013
On arranging irregular flights to, from and within Ukraine
for the period of EURO-2012
Order of the Ministry of Infrastructure of Ukraine on 02.04.2012
№ 203, registered in the Ministry of Justice of Ukraine on
17.04.2012 №573/20886
Official Bulletin of Ukraine, official edition on
04.05.2012 2012, № 32, p. 314 Article 1204, Code of
the Act 61297/2012
2013
On approval of the Regulation on rescue and fire fighting
services support for the civil aviation of Ukraine
Order of the Ministry of Infrastructure of Ukraine on 27.08.2012
№ 525, registered in the Ministry of Justice of Ukraine on
19.09.2012 №1613/21925
Official Bulletin of Ukraine, official edition on
19.10.2012 2012, № 77, p. 284 Article 3142, Code of
the Act 63727/2012
2013
On amendments to Regulation on the fire fighting
services in air transport of Ukraine
Order of the Ministry of Infrastructure of Ukraine on 05.09.2012
№ 533, registered in the Ministry of Justice of Ukraine on
20.09.2012 №1621/21933
Official Bulletin of Ukraine, official edition on
22.10.2012 2012, № 78, p. 216 Article 3187, Code of
the Act 63774/2012
2013
Order of prior information transferring by air carriers or
authorized persons to the State border security services
and customs authorities on passengers, import and
transit goods transported by aircraft.
Order of Administration of the State Border Service of Ukraine,
the Ministry of Finance of Ukraine, the Ministry of Infrastructure
of Ukraine on 27.04.2012 № 291/506/228, registered in the
Ministry of Justice of Ukraine on 11.05.2012 №740/21053
Official Bulletin of Ukraine, official edition on
21.05.2012 2012, № 36, p. 444 Article 1369, Code of
the Act 61607/2012
2011
On amendments to the Law of the Ministry of Transport
and Communications № 433 dated 14.04.2008
Order of the Ministry of Infrastructure of Ukraine on 07.11.2011
№ 522, registered in the Ministry of Justice of Ukraine on
24.11.2011 № 1342/20080
Official Bulletin of Ukraine, official edition on
09.12.2011 2011, № 93, p. 125 Article 3400, Code of
the Act 59323/2011
2012
193
2011
On inapplicability of legal acts of the USSR in Ukraine
Order of the Ministry of Infrastructure of Ukraine on
11.07.2011 № 205, registered in the Ministry of Justice of Ukraine
on 26.07.2011 № 920/19658
Official Bulletin of Ukraine on 12.08.20112011, №
59, p. 206 Article 2382, Code of the Act 57814/2011
2012
On amendments to Resolutions of the Cabinet of
Ministers of Ukraine dated 26.09.2007 № 1172 and
07.09.2011 № 937
Resolution of the Cabinet of Ministers of Ukraine of 11.07.2012
№ 712
Official Bulletin of Ukraine on 13.08.2012 2012, №
59, p. 137 Article 2374, Code of the Act 62901/2012
“Uriadovy Courier” of 14.08.2012 № 145
2012
On establishment of the National Bureau for
Investigation of aviation accidents and civil aircraft
incidents
Resolution of the Cabinet of Ministers of Ukraine on
21.03.2012 № 228
2012
On approval of the Procedure for establishment and
collection of penalties for violations of the law on air
transport
Order of the Ministry of Infrastructure of Ukraine of 26.12.2011
№ 637, registered in the Ministry of Justice of Ukraine of
19.01.2012, № 73/20386
Official Bulletin of Ukraine on 03.02.2012 2012, №
7, p. 163 Article 272, Code of the Act 60175/2012
2013
On repeal of Resolution of the Cabinet of Ministers of
Ukraine of 08.10.2008 № 895
Resolution of the Cabinet of Ministers of Ukraine of 29.04.2013
№ 329
“Uriadovy Courier” dated 16.05.2013 № 85Official
Bulletin of Ukraine on 24.05.2013 2013, № 36, p. 36
Article 1268, Code of the Act 67035/2013
2011
On approval of Rules of conducting official investigations
of unlawful interference into civil aviation
Order of the Ministry of transport and communications of
Ukraine on 02.11.2010 № 804, registered in the Ministry of
Justice of Ukraine on 24.01.2011 № 106/18844
Official Bulletin of Ukraine on 11.02.2011 2011, №
8, p. 84 Article 390, Code of the Act 54693/2011
2011
Rules for issuing certificates to aircraft technical
maintenance staff (Part-66)
Order of the Ministry of Infrastructure of Ukraine of 27.07.2011
№ 238, registered in the Ministry of Justice of Ukraine on
18.08.2011 № 987/19725
Official Bulletin of Ukraine of 05.09.2011, № 66, p.
40 Article 2560, Code of the Act 58073/2011
2011
Rules for approval of organisations for technical
maintenance trainings (Part-147)
Order of the Ministry of Infrastructure of Ukraine of 27.07.2011
№ 237, registered in the Ministry of Justice of Ukraine on
18.08.2011 № 986/19724
Official Bulletin of Ukraine on 05.09.20112011, №
66, p. 25 Article 2559, Code of the Act 58072/2011
2012
Registration requirements for civil aircrafts (Aviation
Rules of Ukraine, Part 47)
Order of the Ministry of Infrastructure of Ukraine of 25.10.2012
№ 636, registered in the Ministry of Justice of Ukraine on
16.11.2012 № 1926/22238
Official Bulletin of Ukraine on 14.12.2012
2012, № 93, p. 330 Article 3814, Code of the Act
64631/2012
Source:http://avia.gov.ua/documents/Normativno-pravova-baza/perelik-aktiv/23687.html.
194
Official Bulletin of Ukraine on 02.04.2012 2012, №
23, p. 13 Article 875, Code of the Act 60920/2012
“Uriadovy Courier” on 11.04.2012 № 66
Annex 8: State support to Culture and Sports
Table 1: Consolidated budget support (including State and local budgets) for Sports, Culture and Mass Media during
2008-2009, UAH million.
Code
Activities
2008
State
0800
Health and Spirit Development Activities
0810
Physical Culture and Sport
0820
Culture and Arts
0821
2009
Local
Consolidated
State
Local
Consolidated
2,917.60
4,998.50
7,916.10
3,216.70
5,113.50
8,330.20
836.90
1,227.30
2,064.20
1,462.70
1,225.20
2,687.90
1,250.90
3,557.90
4,808.80
1,074.60
3,691.50
4,766.10
Theatres
209.80
466.20
676.00
313.30
515.50
828.80
0822
Artistic groups, concert and circus organisations
164.80
261.50
426.30
225.80
283.10
508.90
0823
Movie industry
50.80
20.50
71.30
5.15
20.10
25.25
0824
Creative unions
8.96
67.40
76.36
7.75
125.40
133.15
0825
Libraries
136.10
921.50
1,057.60
102.60
1,074.20
1,176.80
0826
Museums and exhibitions
204.70
298.70
503.40
107.20
313.70
420.90
0827
Reserves
191.50
50.60
242.10
154.80
51.80
206.60
0828
Clubs
0.00
1,024.80
1,024.80
0.00
1,099.60
1,099.60
0829
Other activities in sphere of culture and arts
284.40
514.10
798.50
158.00
333.40
491.40
0830
Mass media
791.70
213.30
1,005.00
651.40
196.80
848.20
0831
Television and radio
663.10
67.94
731.04
602.30
64.10
666.40
0832
Press
27.80
120.10
147.90
22.90
113.20
136.10
0833
Book publishing
36.20
20.80
57.00
4.80
15.60
20.40
0834
Other mass media
64.60
4.60
69.20
21.50
4.00
25.50
Table 2: Consolidated budget support (State and local budgets) for Sports, Culture and Mass Media from 2010 to 2011,
UAH million.
Code
Activities
2010
State
2011
Local
Consolidated
State
Local
Consolidated
0800
Health and Spirit Development Activities
5,165.50
6,359.80
11,525.30
3,830.0
6,924.5
10,754.5
0810
Physical Culture and Sport
2,812.30
1,478.20
4,290.50
1,408.00
1,603.90
3,011.9
0820
Culture and Arts
1,379.60
4,666.80
6,046.40
1,513.20
5,102.30
6,615.5
0821
Theatres
346.20
598.10
944.30
39.,60
658.80
1,049.4
0822
Artistic groups, concert and circus organisations
253.60
334.20
587.80
268.30
365.00
633.3
0823
Movie industry
31.40
21.71
53.11
111.60
19.20
130.8
0824
Creative unions
10.60
98.90
109.50
9.70
77.00
86.7
0825
Libraries
163.30
1,448.20
1,611.50
192.60
1,515.50
1,708.1
0826
Museums and exhibitions
154.40
386.80
541.20
171.60
414.30
585.9
0827
Reserves
268.30
66.30
334.60
238.20
67.70
305.9
0828
Clubs
0.00
1,401.30
1,401.30
0.00
1,578.80
1,578.8
151.80
410.10
561.90
130.60
482.80
613.4
0829
Other activities in sphere of culture and arts
0830
Mass media
936.10
211.80
1,147.90
859.70
218.30
1,078.0
0831
Television and radio
847.30
73.00
920.30
763.40
76.70
840.1
0832
Press
31.10
118.50
149.60
37.70
119.90
157.6
0833
Book publishing
13.30
16.10
29.40
10.40
15.90
26.3
0834
Other mass media
44.50
4.20
48.70
48.20
5.80
54.0
196
Table 3: Consolidated budget support (State and local budgets) for Sports, Culture and Mass Media from 2012 to 2013,
UAH million.
Code
Activities
2012
State
Local
2013
Consolidated
State
Local
Consolidated
0800
Health and Spirit Development Activities
5,488.50
8,151.10
13,639.60
5,111.90
8,549.30
13,661.20
0810
Physical Culture and Sport
1,979.90
1,953.20
3,933.10
1,874.60
1,994.80
3,869.40
0820
Culture and Arts
2,037.10
5,980.80
8,017.90
2,120.70
6,323.40
8,444.10
0821
Theatres
486.70
791.90
1,278.60
558.30
839.20
1,397.50
0822
Artistic groups, concert and circus organisations
313.40
397.20
710.60
348.20
421.10
769.30
0823
Movie industry
145.90
20.40
166.30
141.40
20.20
161.60
0824
Libraries, museums and exhibitions
416.80
2,296.90
2,713.70
353.90
2,419.40
2,773.30
0827
Reserves
524.30
79.60
603.90
602.90
85.70
688.60
0828
Clubs
0.00
1,896.10
1,896.10
0.00
1,980.60
1,980.60
0829
Other activities in sphere of culture and arts
149.90
498.60
648.50
115.90
557.10
673.00
0830
Mass media
1,387.10
217.20
1,604.30
1,016.00
231.10
1,247.10
197