Donbas fell out of Ukrainian’s economy. Part 1

A year and a half ago the Donbas was considered to be the industrial center of Ukraine and it deserved that.

Today, with every passing day, it has been turning into scorched earth.

The system of inter-budget relations of Kyiv with the region is somehow working, but they are not more than social payments and transfer of taxes. There are no stimuli for economic growth in the region. 
The major part of businesses have left the Donbas and they are not planning to come back. Small and medium businesses were the first to leave the region. They were the most mobile. It is easier for them to restructure than for big businesses. It is easier for them to reregister on the territory controlled by Kyiv.

Big companies are the clumsiest ones. The major part of them changed the registration, but did not move. Their assets are in the ATO zone and cannot be transferred. To transfer a big plant is equal to starting from a scratch, to building a new one.

Photo podrobnosti.ua

Big companies with production capacities in the East have to do the following: they pay taxes to Ukraine, try to find common language with occupants, have to take into account the political situation and to save their assets.

How long will they be able to balance – the time will show. But one thing can be said: the war launched processes which transform big businesses and will change their relations with the state.

Less and less taxes

According to the state fiscal service statistics, Luhansk and Donetsk offices worked with 263 big tax payers (the data of the beginning of July). 94 of them are on the territory controlled by Ukraine; 169 are in the ATO zone.

At the same time, 51.5% of businesses working in the ATO zone submit reports and pay taxes to the budgets of all levels.

Some businesses stopped submitting reports and paying taxes as they had stopped working partially or completely. A part of industrial and trade businesses have been damaged; some of them have been completely ruined and cannot be restored.

In particular, “Stirol”, “Kargill” mills, “DTEK High Voltage Networks”, “DTEK “Komsomolska Mine”, Horlivka machine building plant, “Transmash”, Zasyadko mine, state business “Luhansk Central Market”, and others.

 
The map of the National Security and Defense Council: September 14, 2015

Alchevsk metallurgical works, Artemivsk nonferrous metals processing plant, “A.V.K.” confectionary are experiencing problems with raw materials supply because of the damaged infrastructure.

According to the official data, 2.4 billion Hryvnyas were transmitted to the budget general fund from Luhansk and Donetsk major payers in the first half of the year, 2.2 billion less (48%) than in the first half of the last year.

In 2013, the share of Luhansk and Donetsk major businesses in the budget receipts was 11.2%; in 2014 it decreased to 8.1%; this year it is 3.4%.

One of the reasons of the collapse is the decreased receipts from taxes on income from physical persons as the number of the employed has decreased.  The pace of employment reductions in major businesses is catastrophic. For example, more than 308 thousand worked for big businesses in the Donetsk and Luhansk regions in May, 2014. In June the figure was 181.3 thousand.

The budget effect is 336.5 million Hryvnyas of receipts from tax on individuals during the six months of the current year. In 2014, the figure was 613.3. Receipts from single social contribution decreased by 1.4 billion Hryvnyas and was 2.6 billion.

Not together, not separate

Businesses are experiencing a kind of “split personality”. It happens when two business management centers are working simultaneously, and it is impossible to get rid of any of them.

“For example, the Ukrainian Ministry of Infrastructure holds telephone conferences with Donetsk Railway every morning. The problem is that its territory exceeds the geographical borders of the Donetsk region. It has to receive humanitarian cargo, to take coal in and out. It is impossible not to contact with the Ukrainian side”, says Tetyana Korotka, deputy business commissioner, in an interview to The Economic Truth.

In fact, the Donetsk Railway has also split into two. “A part of the railroad is under the control of Kyiv, including partial usage of the South and Transnistria Railways. There is also a part located on the territory not controlled by Ukraine. It is evident that there is coordination as there is traffic between the territories”, says the government representative. 

 
Photо lastnews.com.ua

The existence of the two company management centers negatively influences its work.

Halina Kalachyova for The Economichna Pravda, September 15, 2015

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