On January 4, 2021, the Verkhovna Rada registered draft law No. 4575 “On Amendments to the Budget Code of Ukraine Regarding Funds from the Privatization of State-Owned Objects,” which proposes to significantly change the procedure for distributing funds received from the privatization of state-owned objects. The document is significantly related to other draft laws No. 4572, 4573, 4574, which are designed to activate the process of transferring state-owned objects for privatization and lease. We have already analyzed draft laws No. 4572, No. 4573, and No. 4574 earlier.
What do we have now?
The current provisions of the Budget Code of Ukraine provide that the funds from the privatization of state property (including other revenues directly related to the privatization process) are credited to the state budget and are sources of its financing.
As for funds from the alienation of municipal property, they, accordingly, are the source of formation of local development budgets.
What is proposed?
Draft law No. 4575 defines the percentage distribution of the funding received from the privatization of state-owned objects between budgets of different levels by amending clause 2 of part 1 of Article 15, part 3 of Article 15, part 4 of Article 30, and part 1 of Article 71 of the Budget Code:
- 67% from the sale of small-scale privatization objects and 88% from the sale of large-scale privatization objects — to the state budget;
- 10% from the sale of small-scale privatization objects — to local government budgets;
- 3% from the sale of small-scale privatization objects and 2% from the sale of large-scale privatization objects — to the State Property Fund for taking actions to prepare objects for privatization; payment of remuneration to employees of the State Property Fund of Ukraine, the procedure for payment and the amount of which is established by the Cabinet of Ministers of Ukraine;
- 20% from the sale of small-scale privatization objects and 10% from the sale of large-scale privatization objects — to the management body, that is, to the previous owner.
Are there any risks?
The initiators of the draft law did not add a proper financial and economic justification, which is mandatory in accordance with the provisions of Article 91, part 3 of the Verkhovna Rada Rules of Procedure and Article 27, part 1 of the Budget Code. There is a possibility of returning the draft law without its inclusion in the agenda and consideration at the plenary session, if the Budget Committee does not deem it possible to consider it without such justification.
The inconsistency of the provisions of the draft law with the content of Article 3 of the Law of Ukraine “On Sources of Financing of Bodies of State Power” is also of concern; according to it, “state authorities are prohibited from creating extra-budgetary funds, having extra-budgetary special accounts, and using funds received for the implementation of state functions that provide for the issuance of permits (licenses), certificates, conducting registrations and other actions on a paid basis (except for security services provided on a contractual basis), in any other way, except for crediting such funds to the State Budget of Ukraine.”
This, in particular, concerns the proposal to allocate part of the funds from the privatization of state property to “payment of remuneration to employees of the State Property Fund of Ukraine” (Article 30, part 4, clause 24 of the Budget code). In addition, the text of the draft law does not envisage the establishment of limits on the amount of such remuneration.
What do we offer?
- Clause 24 of part 4 of Article 30 of the Budget Code should read as follows: “expenditures on activities related to the privatization of state-owned objects (at the expense of sources defined in clause 12 of part 3 of Article 15 of this Code).”
The adoption of draft law No. 4575 will encourage bodies that often do not manage state property quite effectively to transfer it for open and transparent privatization. Providing additional funding will contribute to the effective performance of the SPFU functions related to the preparation of objects for sale. This will activate the privatization process and, accordingly, will contribute to filling the budget.
An increase in revenues to local development budgets from the sale of small-scale privatization objects of state property will also have a positive effect. In the future, these funds can be used for the development of social, economic, and cultural spheres on site.
At the same time, we believe that the relevant draft law should be revised, in particular, the provision concerning the payment of remuneration to employees of the State Property Fund of Ukraine should be removed. In addition, there is a risk of returning the draft law without its inclusion in the agenda and consideration at the plenary session due to non-compliance with the requirements of the Rules of Procedure of the Verkhovna Rada and the Budget Code.