Espresso (Ukraine): kill rent. How Ukrainian authorities are destroying the domestic business

The rate of increase of rent payments incorporated in the bill, which MPs voted in January. In may, the bill was signed by the President. The main idea of this paper is the struggle with the withdrawal of profits abroad, and “improvement of tax administration, elimination of technical and logical errors,” which led to even greater complexity in the administration and added logical inconsistencies for domestic business.

The bill added provisions which otherwise cannot be called populist. Among others, the norm of “milking” the mining and metallurgical complex (MMC), including such companies as “ArcelorMittal Krivoy Rog”, “Metinvest” and “Ferrexpo”, etc. we are Talking about raising the rent on extraction of iron ore from 8% to 11-12%.

The deepening global economic crisis and quarantine in connection with the coronavirus is not the best time to increase any tax rates and increased penalties for violation of tax legislation. The increase in rental rates on iron ore mining led to a 50% increase in rent payments of MMC. Against the background of tax breaks and subsydiowanie other countries of its industry, the increase in the tax burden during a pandemic looks like discrimination towards the Ukrainian enterprises.

Private companies are already working on the verge of profitability. If in the first half of 2018 “ArcelorMittal Kryviy Rih” made a profit of 4.2 billion hryvnia, then in 2019 have recorded a loss of 79 million. Not surprisingly, the company must apply to MPs about the delay in the introduction of the new rules. With a similar appeal to President Vladimir Zelensky addressed “Azovstal” Group companies “Metinvest”. Until I heard that. Oleksiy Goncharenko, people’s Deputy of the faction “European solidarity”, in particular, told the media: “Time is short, and I don’t see any movement on this law. So I think more is that we hear business. Things are there, the law began to operate, and has already begun its negative impact on the business.”

General Director of Metinvest group Yuriy Ryzhenkov during a virtual press tour at the boiler. Ilyich said that the Group “Metinvest” it is unacceptable and failure to increase rates of rent for extraction of iron ore, provided by law №466-IX, he was in favour of amending the law. In particular, the document does not contain a mechanism that would allow to respond to changes in the world market. “We urge to develop a transparent and understandable, related with the market, methods of setting rents,” added the chief. He also noted that in 2019, the loss of metallurgical enterprises of Ukraine exceeded 30 billion. So they are not closed, they had to subsidize the revenues from sales of iron ore. As a result, the adoption of the law caused even greater blow loose in the epidemic of the coronavirus MMC of Ukraine.

ArcelorMittal steel company appealed to the Parliament with a request to postpone for a year the increase in rates of rent on extraction of iron ore. “Increase the level of rent will lead to the loss of markets and sources of foreign exchange earnings, job cuts, a significant decrease in payments to the state and local budgets, as well as the deteriorating state of the economy and national security of Ukraine”, — the statement reads. ArcelorMittal also said that in the current crisis, caused by restrictions due to the epidemic, the governments of other countries support primarily their own products, and in Ukraine, the government increases the tax pressure on him.

In the company of Ferrexpo also point out that the abolition of the law as drafted. Note that additional burden on mining companies was the approval of a separate methodology for the so-called “commodities”. Despite the fact that the relevant paragraphs of 466 of the Law already went into effect with 26.05.2020 G., the business still does not know by what method it should calculate the fair price for their products and even have tools for this calculation. “There is no list of commodities, not established sources of information for the definition of the benchmark (an indicator used to assess the state of the market or its segments — approx. ed.) prices for commodities, the terms of the notice of conclusion of the contract on the supply of commodities is objectively impossible to execute, which receives a discriminatory tax right in its sole discretion choose to give the comparative prices for the controlled transactions of the taxpayer,” — said in Ferrexpo.

This time the law is not just harmful to Ukrainian businesses, it helps businesses of other countries, in particular Russia, which have competitive advantages on the external markets due to low rates of rent, and therefore lower production costs. Some Russian Newspapers are already happy panic of Ukrainian Industrialists.

Chairman of the Federation of metallurgists of Ukraine Sergei Belenky predicted that Ukrainian business will lose the Chinese market and partially markets of EU countries. Incomes of the Ukrainian budget will not grow and will decrease as the volume of production of iron ore the ore will be reduced at least by 20%. Accordingly, reduced exports and foreign currency revenues into the country.

Another consequence of the adoption of the law with the norm of the increased rent is the degradation of the Ukrainian mining and metals companies and the negative impact on social programs. Because of tax increases there is a greater risk reduction in the investment program for environmental and social projects.

“In connection with the entry into force of the law of Ukraine No. 466-IX private JSC” Sukha Balka “to bear the additional cost of paying rent. This, in turn, will reduce available funds that were planned to invest in increasing production, improving product quality, improving safety, social programs, etc. All increase of rates of rent in the middle of the fiscal year will have a tremendous impact on the financial condition of the company, plans to 2020 and beyond,” — said the press service of “Dry Beam” specialized edition GMK Center.

The above list of problems brought act No. 466 which has faced business, is not exhaustive. All together they are able to deliver a powerful blow to the competitiveness of Ukrainian mining and metals and its investment attractiveness, which will lead to loss of world markets, reducing sales volumes and, accordingly, tax revenues in the future.

The current situation in Ukrainian mining and metals do not require additional state preferences (and even rejects them) seems to provide for the protection of local business in other countries. Realizing its social responsibility, the leading domestic mining companies on its own initiative, refused the government provided tax holidays for the duration of the quarantine and pay sales tax payment in full, bear the additional costs of protecting their workers, provide substantial assistance to hospitals and local communities in acquiring the necessary remedies, medicines and equipment.

For its part, the Ukrainian enterprises within the framework of partnership between business and the state rely at least on fiscal and tariff stability and unchanging conditions of play for the coming period.