Budget 2014
11 September 2013
The Government Approves the 2014 Draft State Budget of Ukraine
The Cabinet of Ministers approved the 2014 draft State budget at its meeting on 11 September.
According to the Cabinet of Ministers website, the key indicators of the draft State budget for the coming year are based on GDP growth of 3% and inflation of 8.3%. At the same time, the 2014 Consensus Forecast issued by the Ministry of Economic Development and Trade of Ukraine in August 2013 estimates real GDP at 2.3% and inflation at 5.5% for 2014. The IMF forecasts real GDP and inflation at 2.3% and 4.7%, respectively.
The draft budget estimates the State debt at 32.4% of GDP and State budget deficit at 2.7% of GDP (with 3.4% of GDP estimated by the said 2014 Consensus Forecast expected in 2013).
It should be noted that the draft State budget takes into account a tax rate reduction in 2014, in particular, with VAT falling from 20% to 17%, and the profit tax dropping from 19% to 16%. This lowering of tax rates is regulated by provisions in the Tax Code.
With the VAT rate falling, one could expect a drop in the amount of VAT revenues in the first half of 2014. However, this decrease could be compensated as early as the end of next year due to 1) a possible recovery of the Ukrainian economy resulting in an increased volume of taxable transactions; 2) low comparison base (tax revenues at the previous year’s level); and 3) the use of financial Treasury bills for tax refunds from the budget.
One could also expect a positive impact on budget revenues from the lowering the enterprise profit tax rate. Still, the effect of tax base expansion will only be felt based on the 2014 results. Therefore, a positive impact could be projected in 2014, when the rate will apply to the 2014 financial results. This is due to the fact that starting in 2013, the enterprise profit tax is paid in equal monthly installments calculated from the previous year’s financial result.
The full text of the draft 2014 State budget of Ukraine will be available to the public on the Verkhovna Rada website after the Cabinet of Ministers submits the bill to the Verkhovna Rada.
Glyanec