By Andrea Shalal
WASHINGTON, Feb 27 (Reuters) – The International Monetary Fund’s mission chief for Ukraine said on Friday it was essential for Ukrainian authorities to deliver on the structural reforms agreed as part of a new $8.1 billion loan package approved by the IMF’s board on Thursday.
Gavin Gray told reporters that Ukraine had agreed to adopt a series of reforms under the terms of the new loan, including a package of tax measures involving its value-added tax (VAT) threshold to be adopted by the end of March. The sooner those changes came into effect, the better, Gray said.
“Ukraine’s spending needs are expected to remain very high, but fiscal policy needs to live within existing financing constraints,” Gray told reporters.
“Financing, national security, reconstruction and social protection will require support from external partners, but that will not be enough, and Ukraine will also need to do more to tackle tax evasion and avoidance and mobilizing domestic revenue in the near-term,” he said.
Gray said Ukraine’s objective was not to raise taxes for the small group of taxpayers that already paid, but to close loopholes that enabled others to avoid paying taxes by operating in the shadow economy, which gave them an unfair advantage over compliant firms and posed a “barrier to long-term growth.”
The changes to VAT and tax measures were aimed at addressing another big issue – customs loopholes that put domestic businesses at a competitive disadvantage, Gray said. Ukrainian authorities also planned to increase the VAT threshold to ensure it did not adversely hurt small, legitimate businesses, he said.
“From our perspective, we will be okay if this threshold were to rise, as long as it doesn’t go beyond 85,000 euros, which is the requirement under EU regulations,” Gray said, adding that businesses and tax authorities needed time to prepare.
Gray said it was difficult to estimate the potential increase in revenues, and it would depend on the threshold.
He also underscored the need for Ukraine to strengthen the government and combat corruption, reforms that were essential for its ambition to join the European Union, maintain the confidence of donors and attract foreign investment.
“Ukraine’s post-war growth prospects heavily depend on improvements to governance,” he said.
Deputy mission chief Trevor Lessard told reporters the IMF was closely monitoring reports that some holders of Ukraine’s dollar bonds who agreed to an earlier restructuring were exploring ways to get better terms, concerned that a December restructuring put them at a disadvantage.
The current loan does not foresee additional debt service payments, but the IMF would modify its approach as needed, Lessard said.
(Reporting by Andrea Shalal; Editing by Chizu Nomiyama and Nia Williams)
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