Yanukovych signs law on treasury bills

The Cabinet of Ministers of Ukraine will be able to use treasury bills (T-bills) in the established volumes to restructure budget accounts payable accrued as of January 1, 2013 and to execute the debt on value added tax (VAT) refunding if taxpayers select this means of refunding.

Ukrainian President Viktor Yanukovych signed on Wednesday a relevant law, which was passed by parliament on July 4, 2013.

According to the document, the sum of the debt will be divided into five equal parts and executed with the help of T-bills that will mature in one, two, three, four and five years. The possibility of paying liabilities to the national budget using T-bills is also foreseen, although no earlier than the term of their maturity.

The T-bills' term of circulation is up to five years and the yield on them is 5% per annum.

First Deputy Prime Minister Serhiy Arbuzov said last week at a meeting with European Business Association that the use of T-bills to formalize the debt on VAT refunds will be entirely voluntary.

At the same time, Ukrainian business opposed this bill, and in particular, the Federation of Employers of Ukraine, headed by Dmytro Firtash, asked the president to veto the bill.

"These innovations show the intention of the authorities to take not less than UAH 20 billion in working capital from the business in the second half of the year," the Federation of Employers of Ukraine (FEU) said in a statement on July 19. According to the federation, the proposed option to use treasury bills to pay debts on VAT refunds, given the non-market interest rates and the absence of choice for businessmen, actually means that the state's obligations to employers will be frozen for a period of up to five years.

The FEU believes that this will further worsen the financial condition of enterprises, reduce exports and increase the trade deficit and the hidden budget deficit.

In addition, giving the Income and Tax Ministry an opportunity to actually make decisions about how to reimburse VAT with treasury bills or cash creates new opportunities for corruption in this matter, the federation believes.

The account payable of the general fund of the national budget as of January 1, 2013 stood at UAH 4.35 billion compared to UAH 2.19 billion a year before, while VAT refunding for 2013 is foreseen in the volume of UAH 59.5 billion.