Exclusive: Ukraine’s Finance Ministry quietly working to convince MPs to vote for unpopular tax change

Prefer on Google by Luca Léry Moffat A Ukrainian flag flies above the headquarters of the Ukrainian Finance Ministry in Kyiv, Ukraine, on Feb. 8, 2017. (Vincent Mundy/Bloomberg via Getty Images) Ukraine's Finance Ministry is hoping to convince Ukrainian lawmakers to vote for unpopular tax changes — needed to keep receiving cash for foreign donors — with improvements to electronic tax filing systems. Kyiv has agreed to a long list of reforms as part of large financing packages from international partners, including the International Monetary Fund, the EU, and the World Bank. Ukraine relies on the cash to support its military and state services functioning. One of the most scrutinized reforms is changes to a simplified tax regime for self-employed entrepreneurs, a widely used employment status in Ukraine known by its acronym FOP. The IMF says that the changes will improve Kyiv's ability to raise revenue. But the changes are deeply unpopular in Ukraine, with a major concern being the increase in bureaucracy for small businesses. Ukraine's parliament has pushed back against the proposal. To get the parliament on board, Ukraine's Finance Ministry is eyeing bureaucracy-reducing IT measures, according to a government official with close knowledge of the matter. The idea is to make it easier for small businesses to cope with the changes, and eliminate the need to hire an accountant. The official could not say whether it would be an entirely new IT system, or improvements to the current tax declaration system. The idea is currently in "concept stage," and that implementation will only be possible after the IMF's next visit, scheduled for May. No formal steps to implement the changes have been taken, since the idea must first be approved by all sides. The official also said that despite flexibility from the IMF on the timeline, the FOP changes are "not going away," striking a different tone to recent comments made by Ukraine's Prime Minister. Following a week of high-level meetings in Washington D.C. during the IMF's Spring Meetings , PM Yulia Svyrydenko said that the fund had shown understanding that the tax changes were "non-constructive." But the official said that this was misleading, adding that the IMF had simply not pushed back against the suggestion that the changes be introduced later on — likely from 2027. In a reform push, the EU is also set to make part of its new 90-billion-euro ($105 billion) support loan to Kyiv conditional on the IMF-required taxes being implemented in Ukraine, according to internal European Commission documents seen by the Kyiv Independent. Ukraine is lagging behind on several indicators for the European Union, World Bank, and the International Monetary Fund, as the parliament struggles to pass legislation . Staff from the fund will visit in May to assess Ukraine's progress on the benchmarks required to receive the next tranche of the program. Kyiv missed a March 31 deadline to introduce three taxes, including the changes to VAT. The other two involve taxing incomes earned from digital platforms, such as Uber, and taxing foreign parcels with values of under 150 euros ($175). Under the conditions of the IMF's new $8.1 billion program, the next tranche of $685 million is contingent on Ukraine making all three of those changes. But several Ukrainian officials speaking anonymously to the Kyiv Independent said that they are confident that Ukraine will pass the review, given the leniency expressed by the fund in Washington. Ukraine's economy was battered over the winter, as Russia launched repeated waves of missiles and drones at the country's energy infrastructure, even as temperatures plunged to below -20 degrees Celsius. Ukraine's growth outlook has dimmed due to the attacks.