Ukraine to Restore Free Economic Zones

KIEV, Ukraine -- Ukraine's new government plans to reinstate tax privileges for certain regions and will consider increasing import customs, the first deputy prime minister said in an interview published Monday.

First Deputy Prime Minister Mykola Azarov

Both moves would be likely to benefit Ukraine's industrial sector, whose leaders are the dominant force behind new Prime Minister Viktor Yanukovych's Party of Regions, and could help boost the country's economy.

The new government was settling into place Monday after being approved by parliament last week. It brings back many of the people who saw their careers upended when the 2004 Orange Revolution protests against election fraud helped bring a group of pro-Western reformers to power.

President Viktor Yushchenko agreed to approve the nomination of his former Orange Revolution rival, Yanukovych, after the latter publicly committed to uphold the democratic principles and pro-Western path adopted by the president.

First Deputy Prime Minister Mykola Azarov laid out his top priorities in an interview posted Monday on Party of Regions' Web site.

He said that three or four of Ukraine's so-called free economic zones will be restored. He didn't specify where, saying it would depend on where "big investment is truly located."

The zones, which offer investors tax breaks and other incentives, were canceled in 2005 by former Prime Minister Yulia Tymoshenko, who said they allowed Ukraine's oligarchs to bleed money from the state.

The cancellation sparked an outcry not only in Ukraine but also among foreign investors, particularly Polish firms. Yushchenko, who later fired Tymoshenko, called the cancellation a mistake.

"When I hear speculations that we'll cause a huge hole in the state budget and missed revenues will be in the tens of billions, I want to say in answer: compared to other world economic zones, we are offering very few advantages, a thousand or hundreds of thousands time less than what you see in, say, China," Azarov said.

He added that the government would explore how it could compensate investors who suffered unexpected losses when the zones were canceled.

Azarov also said that the new government would take another look at the low import customs on light industrial products and textiles, saying that Ukraine had until 2009 to lower the rates under agreements reached toward joining the World Trade Organization.

"However, the Cabinet of Ministers lowered customs already in 2005," Azarov said. "Importers were allowed to become rich at the expense of the state treasury."

The new government also said it would work to cut value-added tax and profit tax rates in 2008. Azarov said the country would look into the financial health of the state's gas company, Naftogaz, to determine what was happening with Ukraine's own gas resources, which he said should be enough to supply the domestic sector.

But as for revising this year's controversial gas deal with Russia, and possibly removing the middleman RosUkrEnergo, Azarov said that wasn't atop his agenda.

Source: AP