The third round table discussion in a series of scheduled regional round tables on budget and tax decentralization took place in Lviv. The event was attended by experts from Minregion, Ministry of Finance, Ministry of Healthcare, Ministry of Education and Science, State Fiscal Service, as well as by representatives of oblast’, raion, city, village, settlement councils, department of finance and territorial authorities of the State Fiscal Service.

During the event the local authorities were informed about the essence of budget and tax changes that would be implemented in the process of decentralization reform implementation.

“Decentralization should result in comfortable self-governance model, which would reflect real needs of communities, have financial background for progress, and be public-friendly”, noted the head of Lviv Oblast’ State Administration, Oleg Synyutka.

Discussion participants considered the mechanisms of attraction and usage of funds at the local level, peculiarities of the new tariff policy, financing of allocations for education and healthcare, as well as innovations in the Tax Code of Ukraine.

“The state will become strong when rural communities are strong. At the same time, a community will become strong, when it gets enough financial resources. That is why the state offers a favourable mechanism for replenishment of local budgets”, stated the acting deputy head of Lviv Oblast’ State Administration, Rostyslav Zamlynsky, during the meeting.

Amendments to Budget and Tax Codes of Ukraine, adopted by Verkhovna Rada in December 2014, are the most significant step towards budget decentralization during the last years.

Based on these changes, the State Budget for 2015 was formed.

“The amendments, adopted in December 2014, were not cosmetic ones. They envision implementation of a new form of financial provision of local budgets and introduce cardinal changes into relations between state and local budgets”, said Galyna Markovych, deputy director of Department of Local Budgets, head of Local Budget Planning Department of the Ministry of Finance of Ukraine.

The new budgetary legislation expands the rights of local authorities, and grants them budgetary independence. It also extends the sources of local budget replenishment.

According to Minfin data, thanks to implementation of a new funding model, local budgets will get the additional resource (on top of the general fund) of more than 22 billion UAH, while, the general amount, including the inter-budget transfer balance will exceed 40 billion UAH.

For instance, 100% of administrative services fees, 100% of state customs tax, 10% of income tax of enterprises, belonging to private economy sector, are transferred to local budgets from the state budget. Beside that, the sources of local budget replenishment are expanded as a result of introduction of excise tax on retail of excise products (beer, alcoholic beverages, tobacco products, oil products) with the rate amounting to 5% of the price of sold products. Taxation base is expanded by property tax, which, from now on, will be charged on both residential and commercial (non-residential) property, and tax on cars with large engine volumes. 80% (formerly – 35%) of environmental protection tax will be paid to local budgets. Besides, communities will get basic donation for enhancement of fiscal capacity of their budgets.

Considerable benefits will be enjoyed by unified communities, whose budgets are placed at the same footing with budgets of cities of oblast’ significance and raions. In addition to the listed taxes, they will get 60% of tax on income of physical persons, as well as other revenues.

According to the State Fiscal Service of Ukraine, incomes of local budgets of Volyn, Zakarpattya, Lviv, and Rivne oblast’, as of March 01, 2015, amounted to 1 288.1 million UAH.

In terms of payments, in January-February 2015 the incomes of local budgets of the listed oblasts included:

- excise tax on retail of excise products – 56.6 million UAH;

- property tax – 143.4 million UAH, including transport tax – 223 thousand UAH, immovable property tax –  more than 2 million UAH, land tax – 141.2 million UAH.

“As of today, the reform has already taken the practical course. Particular changes have taken place in the number of taxes, reduced from 22 to 11. In fact, the place of their administration is changed. For instance, the excise tax will be administered locally, at the place of retail of excuse products”, said Yuri Marchenko, deputy head of excise tax department of the Department of control over circulation and taxation of excise products of the State Fiscal Service.

The state has assumed full responsibility for educational services, provided by general education institutions, training of regular labour force by vocational schools, public healthcare services, financing of state social security programmes for certain population categories. For these purposes, local budgets will receive new kinds of transfers, such as educational subvention, subvention on regular labour force training, and medical subvention. Adoption of amendments to the Budgetary legislation will allow for sustainable economical growth before the end of the current year, prevention of crisis processes in financial sector of economy, and 100% fulfilment of local budgets.

“We will be able to evaluate the first outcomes of the reform, at least, as of the end of the first half-year. But we are already witnessing certain advantages of resource allocation, particularly, for local budgets. They are reflected in reparations of pavements, porches, sewers, etc. Consequently, the resource of areas we live in, is improved”, summarized Sergii Sharshov, director of the Department of local self-government and territorial organization of authority of Minregion.

The next regional round table discussions, involving governmental experts, will take place on March 20 in Ivano-Frankivsk, and on March 25 in Kharkiv.

A series of regional round-table discussions on budget decentralization is conducted under support of the Swiss-Ukrainian project “Decentralization support in Ukraine” (DESPRO), and the Government of Great Britain.