Vice Prime Minister of Ukraine Vasily Rogovoy, who heads the Government committee on economic development and European integration, stands out against the privileged taxation experiment in Ukraine’s mining and metallurgic sector (MMS) be continued in 2002

THE FUTURE OF METALLURGIC EXPERIMENT NOT DEFINED YET

Vice Prime Minister of Ukraine Vasily Rogovoy, who heads the Government committee on economic development and European integration, stands out against the privileged taxation experiment in Ukraine’s mining and metallurgic sector (MMS) be continued in 2002. He opposes introduction of tax privileges for a single industry, but supports general decrease of economy’s tax pressure in the new Tax Code.

Besides, Vasily Rogovoy emphasizes that the draft Budget-2002 having been handed by the Government to the Ukrainian Parliament spells no privileges for MMS.

At the same time, the Minister of Industrial Policy Vasily Gureyev insists the experiment should be prolonged for metal-makers. He claims the tax experiment turned out successive. Besides, the draft presented to the Parliament foresees the privileges for metallurgists will be extended for another year, but under one condition: enterprises would forward 75% of tax savings to research and development, purchase of new technologies, and production restructuring.

The Metal’ editorial team addressed Director General of MetallurgProm Assn. Vasily Kharakhulakh to share his opinion on this issue.

Mr. Kharakhulakh, could you please comment decision of the Government committee on economic development and European integration, which came against ratification of the Law "On amendments to the Law of Ukraine "On economic experiment at mining and metallurgical enterprises of Ukraine". The stand turns against prolongation of the MMS experiment in 2002, though the recent meeting at the Prime Minister of Ukraine revealed complete support of the experiment for metallurgists?

As concerns the decision of the Government committee on economic development and newspaper statements by Vice Prime Minister Vasily Rogovoy, who proposed to exchange experimental privileges for tax benefits and who called on metallurgists to lobby adoption of the new Tax Code, I would like to say the following. Since the first quarter of 2000, metallurgists have been lobbying the issue of applying the Law "On economic experiment" to all economic sectors, claiming a single tax code should be established for all sectors. On behalf of every enterprise within the Association (metallurgists and ferroalloy-makers), MetallurgProm Assn. announced this back in 2000 at the third meeting of the Professional Union of Mining and Metallurgical Employees of Ukraine (after the first nine months of experimental treatment). To present document evidence, here is the end of the report, which was published in special conference issues of scientific and production magazine "Metallurgical and mining industry" (No.7/2000, page 42).

"Upon performance in 1999 and in the first two months of the present year, economic experiment today is definitely the most effective measure to drive MMS enterprises out of crisis. Loosening of tax pressure, as stated in the Law, would increase profitability of production, bring companies’ solvency up, eliminate shortage of current assets’, settle credits payable, and ensure full-volume budget payments that would grow in money stock.

Reduced payables of metallurgic enterprises and simultaneous growth of accounts receivable suggest that positive experience of metallurgists’ participation should be applied to other economic sectors. The time has come to shoot ahead, to revive production, domestic market, and companies’ solvency, and to ensure worthy reward to all Ukrainian workers".

Since May 1999 till present time (November 2001), MetallurgProm Assn. on behalf of its members (in compliance with the Association’s Statute) and on behalf of the entire mining and metallurgic sector of Ukraine (pursuant to the Decree of the President No. 451/94 of 19.08.94, which defines the Association as chief coordinator of actions by enterprises and unions of Ukraine’s MMS) has repeatedly addressed the issue to the President of Ukraine Leonid Kuchma at the meeting with directors of the sector (January 2001, Krivoy Rog). In April, the matter was referred to ex-Prime Minister Viktor Yuschenko. Finally, we voiced every one of the problems (upon the instruction of directors’ body of metallurgists and ferroalloy-makers of 9.08.01) at the Cabinet of Ministers’ meeting of directors of MMS enterprises with heads of Ministries of Finance, Economics, and the State Tax Administration. The meeting was chaired by the Prime Minister of Ukraine Anatoly Kinakh.

More than a year and a half passed, but Ukraine’s mining and metallurgic sector keeps raising the same chief question to the Government – economic experiment proved to be highly efficient, and as a standard for the entire industry (which is the main raiser of budget revenues) operating under new taxation, it should be applied to all economic sectors.

And what do we have so far? Appeals of Vice Prime Minister Vasily Rogovoy, of the State Tax Administration of Ukraine, and other comates to put an end to the experiment and shift to civilized rules.

Who are these statement referred to? Since May 2000, we have been willing to work under tax code single for every industry, though considering positive experience accumulated in the MMS. And what do we have? On the behalf of all enterprises of the MMS, which participated in the experiment, Tax Code proposals were forwarded to the Cabinet of Ministers of Ukraine and to the Parliament long before the Code underwent the first reading in the Parliament. It is the mining and metallurgical sector that has every right to present its experience to the country’s Tax Code. However, we get the impression none of the draft Tax Code creators took a glance at these amendments. What is the civilized society they are calling us to?

Let us take a realistic look.

1. Experiment is over on 01.01.2002.

2. The Tax Code, which badly needs considerable amendments and has virtually no crucial amendment to financial and economic performance of enterprises (even if it is ratified in the first half of 2002), will only become effective in the second half-year of 2002.

3. Mining and metallurgic enterprises of Ukraine will start the year 2002 under present-day taxation.

But this is the disaster! Conditions in the beginning of the experiment (second half of 1999) were much better. Prices for every raw stock and energy source were lower, while global market featured higher prices for metal products.

With present performance of enterprises, with still present shortage of in-house current assets, it only means inevitable return to commodity exchange foreign trade and tolling operations. It is understood by our opponents, who were so harmonious when opposing firm intention of the Prime Minister Anatoly Kinakh and the Minister of Industrial Policy Vasily Gureyev at the August’ meeting in the Cabinet of Ministers to prolong the effective period of the law on economic experiment.

Therefore, not speaking of their stand and actions of the Government committee on economic development with regards to the law on economic experiment, I would like to ask the following questions to heads of ministries that take opposite stand.

Why did not you listen and did not lobby, but rather plainly ignored proposals of the MMS to draft the new Tax Code, while taking into account their positive experience of operating under new taxation?

Why was your appeal to lobby the Tax Code so late?

Who in Ukraine fails to understand that mining and metallurgical sector falling deep will capture other industries?

We pin hopes that common sense will take over in Ukrainian legislative and executive branches. Economic upsurge, stable performance of enterprises according to civilized laws (as it takes place in Russia), increased well-being of the Ukrainian nation – these matters demand serious reasoning today.