Ukraine Revenue Up as Tax Dodging Falls, Premier Says

KIEV, Ukraine -- Ukraine's government has already collected 50 percent more in budget revenue so far this year, compared with 2004, after a campaign to reduce corruption increased tax collection, the country's premier said.

Prime Minister Yulia Timoshenko

Prime Minister Yulia Timoshenko, a former gas executive and one of the country's wealthiest people, said her seven-month-old government has been successful in raising revenue and reducing corruption that flourished under former President Leonid Kuchma.

``All of the tax rates are exactly the same, yet the revenue received is 1 1/2 times greater,'' Timoshenko, 44, said yesterday in an interview in Kiev. ``This is simply the legalization of the economy, the legalization of profit.''

President Viktor Yushchenko tapped Timoshenko, ranked the world's third most powerful woman by Forbes Magazine, to help organize and inspire protesters during last December's Orange Revolution that ousted Kuchma following elections that the European Union ruled as being riddled with fraud. Yushchenko and Timoshenko took office pledging to crack down on corruption, boost investment and forge closer ties to the European Union.

The yield on Ukraine's 7.65 percent bond fell 0.013 percentage point to 6.07 percent as of 9:24 a.m. London time. The price of the bond, which matures in June 2013, rose 0.85, or $8.50 per $1,000 face value, to 109.685, according to Commerzbank AG prices.

Fighting Smugglers

``We have radically reduced the amount of smuggling in Ukraine,'' Timoshenko said. ``As a result, we have increased by at least 2 1/2 times the budget's revenue from import duties, without any sort of tariff increase -- the reverse is the case, some tariffs were reduced.''

Timoshenko is confident her government can afford to raise wages for all government employees by 15 percent from Sept. 1 even as growth slows. The former Soviet republic's $60 billion economy should grow about 6 percent this year, compared with 12.1 percent last year, the Economy Ministry said last month.

Ukraine's gross domestic product expanded 4 percent in the first half of the year, led by a 7.7 percent increase in agriculture, the State Statistics Committee said Aug. 16. Construction contracted 7.7 percent and wholesale and retail trade fell 2.5 percent.

Atypical Measures

Economists should be wary about using standard macroeconomic measures to judge Ukraine for the next two years because the previous government's figures were distorted and industries such as construction and wholesaling are being transformed, she said.

The government discovered 5 billion hryvnia ($1 billion) were paid out last year as rebates on value-added taxation rebates that were based on fictitious exports, calling into question the 2004 figures for GDP and the trade balance, Timoshenko said.

``Our entire wholesale market had been set up through state finances, and it was a clearly corrupt system, there was a whole row of middlemen,'' Timoshenko said. ``Now that we have cleaned this all up and are holding open tenders for every order, for the first time ever in Ukraine, we have a 15 percent decline in wholesale trade: Is this a negative or a positive dynamic?''

The construction industry has been similarly affected by a crackdown on illegal land sales that has forced some companies to suspend or cancel work on plots they were granted under the Kuchma regime, she said.

The other drag on the economy has been the decline in international steel prices, hurting a metals industry that accounts for a quarter of Ukraine's exports. European benchmark steel prices have plunged 33 percent this year, the steepest decline since 1998, according to Metal Bulletin prices on Bloomberg. China's production of the material surged 29 percent last month, outpacing the declines in regions such as Europe and North America.

Asset Sales

The government isn't relying on state asset sales, such as the $2 billion auction of VAT Kryvorizhstal, the country's biggest steelmaker, scheduled for October.

``We want to transform the face of privatization in Ukraine, and we're not aiming to sell stakes in strategic companies simply for the sake of the budget, which would be incorrect,'' Timoshenko said. ``We are seeking to privatize those assets where we want to change the quality of the management, to attract investment, remove state corruption.''

Revenue for the budget from state asset sales is welcome, as it will give the government more money to invest in development, she said.

The government's campaigns against theft, bribery, tax evasion and smuggling are disrupting some areas as they lay the groundwork for sustainable growth, Timoshenko said.

Kuchma Sales

Promises to also probe sales by Kuchma, on suspicion some were illegal or sold to relatives and friends at a discount, has raised concern over property rights in the country.

Ukraine is this year experiencing its first agricultural boom since Soviet times, and the food-processing industries are growing at a ``simply unique'' pace of 16 percent.

``For the first time in Ukraine, agriculture is growing, after there had been a continuous regression in the development of agriculture,'' Timoshenko said.

Source: Bloomberg