The European Union is considering setting tougher conditions on a 90bn-euro loan to Ukraine, with part of the repayments contingent on the implementation of unpopular tax changes for businesses. This was reported by Bloomberg citing sources with knowledge of the situation.
According to the publication, the plan, which is being discussed by the European Commission, will affect 8.4 billion euros of so-called macro-financial aid, which is planned to be provided this year under the programme, which is crucial to support Kiev in the fight against Russian aggression.
The initiative coincides with Ukraine’s efforts to persuade its other important donor, the International Monetary Fund, to at least delay imposing the same requirement to unlock more than $8 billion in additional aid under a separate lending programme, the sources said.
The discussion centred on changes to the favourable tax regime currently applied to some Ukrainian companies.
The sources said the proposal would require the authorities in Kiev to introduce a 20 per cent value-added tax for those companies now operating under the preferential system whose annual revenue exceeds 4 million hryvnias.
The EU aid potentially affected by the new conditions is only a fraction of the entire two-year package, which consists of about 60 billion euros in defence support, with the rest split between macro-financial aid and the so-called Ukraine aid package, which provides funds for general budget spending.
A spokesman for the European Commission said the commission was “working tirelessly” to finalise a memorandum of understanding that would form the basis for the funding conditions for Ukraine, but declined to give details. The spokesman said the EU executive always coordinates its “reform agenda with the IMF, in this case also”. The aim was to conclude negotiations “as soon as possible with an ambitious reform programme to strengthen Ukraine’s economy” and accelerate its integration with the EU, the spokesman said.
While the new conditions will not affect key defence aid, they are still likely to face difficulties. This is likely to cause tensions in Ukrainian society as the proposed measures are highly unpopular.
The Ministry of Finance in March published a so-called “major tax bill” which, among other things, provides for the taxation of income derived from digital platforms, the so-called “OLX tax” and the cancellation of the duty-free import privilege for parcels worth up to 150 euros. On 10 March, the Verkhovna Rada rejected the first version of the bill in the first reading.
It concerned taxation of digital platforms, the so-called “tax on OLX”. Deputies gave only 168 votes in favour. After the publication of the updated bill by the Ministry of Finance
But on 8 April, the Verkhovna Rada approved in the first reading of the finalised bill No. 15111-d on the automatic exchange of information on income on digital platforms and taxation of such income.