Belarus’ ‘know-how’: import restrictions for budget’s benefit
The new accounting and taxation rules have been introduced in Belarus, which considerably adjust financial activity of importers-intermediaries. In October, importers will be prompted to seek substantial sums to repay tax liabilities to the state budget. The state, however, with these new rules solves the cash-inflow-before-2015 problem at the cost of additional expenses for businesses, and accelerates inflation.
As of July 24th, Decree no 361 took effect, which amended some taxation and accounting rules.
As of July 24th, a 90-day delay is introduced on the right to deduct import VAT for companies importing and selling products in the same state. The aforementioned Decree shall not affect the interests of large industrial enterprises, which import own raw materials for further processing. In practice, this provision means that, most companies with quarterly VAT-payment period when transferring tax for the Q3 2014 (until October 22nd) will need to seek additional amount equivalent to the import VAT for the entire period from July 24th until the end of Q3 and list it in the budget. This rule will be valid until the end of 2014.
For the government, this new rule means that it will receive an interest-free loan for a 90-day period from organizations importing goods, mainly consumer goods. Taking into account the overall situation with the profitability of trade and intermediaries, in most cases, importers will have either to use available funds of the founders, or apply for bank loans. These measures will imply additional costs for business and might entail 5%-15% price-hikes on goods depending on seasonality and interest rates on loans.
In October, the state will receive a significant inflow of VAT payments to the budget, because the mechanism of deferred liabilities to offset the VAT paid will take effect. The pressure on the foreign exchange market will be eased, as importers will decrease their supply due to increased prices on goods. The banking system will have a significant amount of new borrowers, as importers will be prompted to resort to loans. The Government will note the growth in prices, and inflation limits will be exceeded, but foreign trade deficit will decrease. Domestic goods will receive somewhat competitive advantage over imported goods, which, in turn, might reduce domestic producers’ stocks of consumer goods.
Meanwhile, enterprises, which use a significant amount of imported raw materials purchased on the domestic market for their own production, will not see a significant improvement due to higher prices on raw materials on the domestic market. Consequently, prices on goods, produced by these enterprises will go up.
The state has once again changed the rules of the game for business in order to achieve its own short-term objectives. The population will feel the effects of the new rules through the rise in prices for imported goods and the deterioration of the goods’ assortment in retailers.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.