Opinion: Increase in VAT-bonds to turn them into instrument for VAT settlements with state
Kyiv. September 14, 2010
”The government’s desire to continue issuing sovereign bonds (OVGZ) to
redeem overdue payments on VAT refund (VAT-bonds) and impossibility to
refund VAT by hard cash could lead to VAT settlements with the state
through these securities, in particular, settlements on import
operations”, believes Associate of Volkov Koziakov and Partners Ruslan Malinovskyi,
commenting to Interfax-Ukraine on the issue related to another
VAT-bonds issue being up for debate by the government. The latter was
informed by First Deputy Head of Administration of the President Iryna
"After having received VAT-bonds a number of companies decided to sell
their VAT-bonds to accelerate replenishment of their working capital. At
that, discount on such sales attained 19– 22 percent of bonds par
value. At the meantime, other companies are willing to use VAT-bonds as a
payment instrument, i.e. redemption of current VAT-liabilities", Mr.
In his opinion, VAT-bonds could be best used without losses at
discounted sales in case of VAT refunds on import operations. VAT-bonds
may also be used as a financial instrument to repay current loans or as a
pledge on long-term liabilities to banks and investors.
Moreover, Mr. Malinovskyi added that the moves taken by the government
in relation to VAT-bonds issue do not fundamentally address the issue of
cutting the amounts of outstanding VAT refunds.
"The offered mechanism has partially proved its value, and many
companies agreed to get VAT-bonds. However, a monthly increase in
current indebtedness on VAT refund would force the government to
continue issuing them", suggests the Associate.
Iryna Akimova was reported as saying that the government is discussing
with the business a possibility of another bond issue as the
government’s indebtedness on VAT. The business raises no objection
against this mechanism.
According to her, business believes the government that possible new
issue will be the last one; otherwise it would not have agreed to use
such mechanism to solve the issue.
At the end of August, the government issued VAT bonds in the amount of
UAH16.4 billions as an indebtedness to refund this tax dated May 1,
2010. Maturity of the bond issue is five years, yield – 5.5 percent
annually. Maturity of bond issue proportionally amortized each half year
– five years.
Companies affirmed that the issue of timely VAT refund was not solved
after May 1, therefore, resulting in formation of a new debt.
Pursuant to the Agreements between the government and International
Monetary Fund, the state debt on VAT refund must be cut down to UAH3
billions until October 1, 2010, and to zero – until the end of the year.