According to the OSF Director Ivan Sikora the inflation rate is likely to be higher than forecasted 12%. This will lead to budget over-fulfillment and ‘manual’ redistribution of the extra revenue. In Sikora’s opinion, the projected revenues were significantly reduced. In reality they add up to several billions of hryvnias. Top underestimated categories include income tax, excise tax, land payments and developers’ shares.
In 2015 the forecasted rates for personal income tax (PIT) were far over-performed. PIT is the main revenue generator for the city budget. Its share exceeds a quarter of total revenues. The surplus revenue, however, is not city government’s merit. The greatest share of Kyiv budget surplus in 2015 was due to inflation and increase in the minimum wage. Following the increase of the minimum wage rate in September 2015 the monthly revenue from transfer of PIT to Kyiv city budget increased to UAH 2 bln. According to Sikora, city authorities should review the estimated 7,9 bln of projected PIT revenues . This indicator was underestimated by 500 million - 1 billion hryvnias.
In 2015 the forecasted revenues were exceeded by more than 3 billion hryvnias, despite city council budget committee Chairman’s statements on the realism of the 2015 budget items. In January-October 2015 the income of the capital city treasury increased nominally by UAH 7.9 billion (45.2%). At the same time, due to the rapid devaluation of the national currency, real budget revenues decreased by USD 242 million (17.9%).
Excise tax is another item of surplus revenues. It is hardly surprising, since majority of the large taxpayers are registered in Kyiv. According to State Fiscal Office’s Chairman Roman Nasirov, thousands of large Ukrainian companies pay 80% of the total fees to the state treasury and form the base of national tax revenues. At the end of 2014 Kyiv had 87,405 registered enterprises (including 128 large and 3,595 medium enterprises).
According to the OSF Director the biggest losses in Kyiv city budget are due to the land payments. This area is well known for corrupt practices, which ‘cost’ local community at least several billions of hryvnias annually. The estimated revenues from the land payments are so low, they are possible to perform with zero funding to the Kyiv Program of land use and protection. In 2015 this important target program was funded by only by several percent. Undoubtedly, this created serious obstacles to the growth of revenues from the land payments. Such situation is beneficial to development companies and land tenants. KCSA officials receive illegal personal payments and turn a blind eye to the land use without lease contracts or at underestimated rent rate (under 3% of the normative monetary value).
Other problems include lack of accurate accounting information on land resources. OSF experts had repeatedly stressed the potential for land revenues increase. One of the possibilities to increase the revenue is to revisit the article "Income from rent for the use of property complexes and other property owned by municipality". At the moment only 1,18 mln sq.m. (10.42%) of the total non-residential area was leased to 5242 tenants. At the same time, according to the Department of communal property 53.2% (or 627.56 thousand sq.m.) was leased on the preferential basis (with a rate of 1 hryvnia per year). The total amount of the revenues for this item in 2016 is estimated at UAH 52,6 mln. According to Ivan Sikora, these revenues could be increased through publication of the open database of municipal property ( indicating property size and the tenants) on the website of the KCSA.
Last but not least, reducing corrupt practices in the field of non-tax revenues (parking, developers’ shares and advertising) carry additional revenue potential.
Ivan Sikora noted some positive developments on the transparency of the publication of the draft Kyiv budget. However, the city government is yet not ready for substantive dialogue with the independent experts.
Watch the full video of Ivan’s speech.
