Ukraine budget revenue jumps 21% yoy in June

Ukraine general budget revenue jumped 21.5% yoy to UAH 59.4 bln in June from 18.8% yoy in the prior month, the State Treasury reported on July 25. In 1H16, general budget revenue grew 13.7% yoy. In spite of the improved fiscal collections, the general budget deficit widened in June by UAH 3.8 bln to UAH 11.3 bln on the back of stronger spending (+19.9% yoy in June). The main driver was the expanding deficit of central budget, which reached UAH 35.1 bln in 1H16 compared to UAH 26.4 bln in 5M16. At the same time, local budgets keep accumulating funds, growing the local budget surplus to UAH 23.8 bln in 1H16 from UAH 22.7 bln in 5M16. 

VAT reimbursement, which was all but halted by the government, was among the key reasons for better budget collections statistics in June. In particular, the State Fiscal Service reimbursed exporters only UAH 0.1 bln in VAT in June compared to UAH 5.3 bln a year ago (and UAH 6.7 bln in the prior month). Also surging  personal income tax revenue of 42% yoy, or UAH 3.6 bln, and excise duty growth of 37% yoy, or UAH 2.3 bln, underpinned budget collections in June.

Alexander Paraschiy: The State Fiscal Service stopped VAT reimbursement out of suspicion that large agri-producers are misrepresenting some of their operations to optimize VAT. This blockage of payments created a scandal at the level of the Cabinet and they have been partially renewed. Still, reimbursement remains an issue after a change in tax rules in 2016 made agri-producers eligible. As a consequence, agri-producers decided to delay their exports till the beginning of 2016, when they could start claiming VAT reimbursement. As a result, VAT claims are much larger than what the State Fiscal Service expected. Indeed if not for the stopped VAT reimbursement, budget revenue growth would have been much more modest in June, or below 10% yoy, according to our estimates.

Despite these developments, we are keeping our positive view on the state’s fiscal performance this year. UAH 38.0 bln in planned dividends from the NBU remains untouched while VAT reimbursement, as usual, can be tightened or accelerated at the government’s preference. Against this backdrop, we do not expect the finance minister to allow budget revenue to slow substantially, especially in light of the steady performance of core revenue items like personal income tax and excise duties.