The Cabinet of Ministers will restore promising territories

The government of Mykola Azarov continues to use the developments of Yulia Tymoshenko. Yesterday, the Cabinet of Ministers unveiled a draft law developed back in January on the creation of promising development territories (PDTs) starting in 2011. According to the project, enterprises investing in such zones, as before 2005, will receive tax preferences. The Verkhovna Rada is ready to revive the TPR, but with the introduction of criminal liability for violating this regime of activity.

From January 1, 2011, the activities of promising development territories with a special tax regime, which was abolished in 2005, can be resumed in Ukraine. The corresponding bill, developed by the Ministry of Economy, will soon be considered by the Economic Policy Committee of the Cabinet of Ministers. The document was approved at a meeting of Yulia Tymoshenko's government on January 27. But Mykola Azarov’s Cabinet of Ministers hardly changed it during the month of work, nor did the documents it adopted on the deregulation of entrepreneurship.

As follows from the document (a copy is available to Kommersant), a TPR can be created in a territory with a population of up to 50 thousand people for a period that will be established by the Cabinet of Ministers, taking into account the social and financial state of the town, village, city or part thereof. A special customs zone regime will be introduced at the TPR, within which investment projects worth more than 10 million euros will be introduced for the production of export products.

Investors, like five years ago, are promised tax preferences. Businesses will be exempt from income tax for ten years, and duties and VAT will not be charged on goods imported into the TPR from abroad. Benefits will apply only to goods that will be used to implement the above projects (except for vehicles, excisable goods and goods of groups 1-24). All goods imported from the customs territory of Ukraine to the TPR will be subject to taxes on a general basis. Working for a TPR does not exempt you from paying personal income taxes, contributions to social funds and land payments.

The previous government proposed all these norms in its version of the bill. The difference is that previously it was proposed to carry out approval of investment projects in the Cabinet of Ministers within 60 days, but now - indefinitely. In addition, in the event of an investor’s violation of its obligations, local authorities are promised to be given the right to make a decision on the early liquidation of the certificate of registration of an investment project, whereas in the old bill these powers were assigned to the TPR administration.

The Ministry of Economy declined to comment. The latest report from the ministry regarding the work of the TPR states that as of February 1 of this year, 97 projects were under implementation at the existing TPRs, and 10 were fully completed (in Crimea, Zhytomyr and Transcarpathian regions). $27 million was invested in these projects. The largest special zone in the country remains the TPR in the Donetsk region - in January it sold products worth UAH 267.1 million, which is 59% of the total sales volume. In January, as in previous years, no benefits were provided, and UAH 33.8 million in taxes were paid. Since the beginning of the existence of TPRs and special (free) economic zones in Ukraine, they have received benefits amounting to UAH 950 million.

The Verkhovna Rada considers the chances of reviving TPR high. Member of the parliamentary committee on industrial, regulatory policy and entrepreneurship Mikhail Chechetov (Party of Regions) believes that special zones will not be used this time for “money laundering and corruption schemes”; they will become an incentive to attract investment. The head of the committee, Natalya Korolevskaya (BYuT), proposes to exclude the possibility of granting preferences to certain businesses by the law on the state budget. Both deputies are confident that without introducing criminal liability both in relation to officials who issue permission to open a TPR for the purpose of conducting dubious business, and in relation to investors who violate the terms of the agreement, previous schemes will be restored in Ukraine. Their committee colleague Vladislav Kaskiv ("Our Ukraine - People's Self-Defense") notes that first of all, the government should create a list of regions where TPR should work, and launch pilot projects to evaluate their effectiveness.

However, experts are confident that special zones with tax benefits are a relic of the past. According to Maxim Ivanov, deputy director of the Ukrainian Center for the Promotion of Foreign Investment (InvestUkraine), until 2004, TPRs were relevant, since the Ukrainian economy was less developed, and the country tried to attract investors in this way. “Now investors who have already entered are not going to leave, despite the fact that there are no benefits. They understand that Ukraine is a promising market, although it has certain risks,” he adds. A Kommersant source in the government also notes that not all members of the Cabinet of Ministers agree with the resumption of the work of the TPR: “The conditions for business should be the same, this position is shared, in particular, by Sergei Tigipko.”

Natalya Nepryakhina

Enterprises are preparing special zones