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Ukrainian parliament repeals tax, tariff breaks for foreign investors

April 9, 1997

KIEV, Ukraine (AP) _ Parliament voted Wednesday to end tax breaks for foreign investors, dealing a fresh blow to businesses struggling with corruption, favoritism and unpredictable regulations.

The largely anti-reform Supreme Rada passed a law revoking exemptions that were designed to attract foreign capital into the limp economy. If signed by President Leonid Kuchma, it will take effect July 1.

The breaks effected include a two-year tax exemption for ventures with more than $50,000 in foreign money, and a rule freeing foreign investors from customs duties on equipment they bring to Ukraine.

Finance Minister Igor Mityukov said the exemptions have cost Ukraine $2.2 billion. The cash-strapped government owes workers and pensioners about three quarters of that amount in back pay for 1996.

Lawmakers said the changes are aimed at companies that do not produce goods in Ukraine. They gave the government two months to draft new legislation that would ease the burden on investors involved in production.

But Western business leaders said the legislation would further discourage foreigners at a time when many are pulling out because of high taxes, fast-changing legislation and corruption.

Ake Davidsson, president of Ukrainian operations for the Swiss-Swedish electrical engineering conglomerate Asea Brown Boveri Ltd., said removal of the two-year exemption would be damaging because few investors make a profit quickly.

``A heavy tax burden during the implementation years will delay foreign investment, or foreign investors will find other alternative markets for investments. Ukraine cannot afford this,″ Davidsson said in a statement.

Despite a market of 51 million potential consumers, Ukraine has attracted just $1.4 billion in direct foreign investment since it became independent from the Soviet Union in 1991.

Kuchma again stressed the importance of foreign investment to Ukraine, and said he regretted last week’s pullout of the U.S. company Motorola from a planned $500 million investment.

Motorola was one of three winners of a tender to develop a cellular phone system, but it dropped its plans citing the ``ever-changing nature of the terms and conditions″ set by the government.

Ukraine is the third largest recipient of U.S. aid, much of it designed to spur reforms that would improve the climate for American and other foreign investors.

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