Shadow Property
Tired of playing hide-and-seek, the Cabinet of Ministers advised enterprises that it has a state-owned interest to “honestly” paid dividends to the state budget. The government will determine the size of such payments for each individual payer. It is also planned to hold preliminary consultations with managers to assess such contributions. This innovation is the cornerstone of the cabinet’s approved concept of dividends policy.
Until recently, state-run enterprises were to contribute 50% of their profits to state coffers. Naturally, under such conditions, any sound-minded manager would try to look for loopholes to hide his company’s earning. For this amounted to an additional tax burden. Owing to the disproportion in budget contributions, state-run enterprises were knowingly placed in a worse starting place than private businesses. As a result, annual plans of state budget dividend- based revenues (200 million hryvnias) have never been fulfilled.
Under conditions when the competing state-run enterprises tried their best to evade paying dividends, all hopes were pinned on the companies that monopolized their markets, such as Ukrtelekom and Naftohaz Ukrayiny. But, by an odd coincidence of circumstances, it is these companies that the Cabinet of Ministers decided to exempt from paying dividends. “These two companies, the greatest potential donors of dividends, have not been paying them for two years,” says Oleksandr Bondar, chairman of the State Property Fund (SPF). In his opinion, such privileges impair the dividends policy of the state as a whole and do not encourage other enterprises to make contributions to state coffers.
The SPF, responsible for fulfillment of the budget revenues plan based on dividends, has decided to stop the current system that compels managers to resort to unfair practices. The SPF-drafted concept envisages dependence of dividend rates on the payer’s financial state. “Dividends will be of the order of 10-25%. I don’t think they will be in this case so burdensome as to encourage enterprises to evade payment,” Mr. Bondar hopes. In his words, the rate of contributions will be determined by a special interdepartmental group and approved by the Cabinet of Ministers. As this involves rather a large number of businesses, the SPF is likely to begin studying their financial state in the immediate future.
The dividends policy concept does not envisage exceptions for Naftohaz Ukrayiny and Ukrtelekom. The dividends paid by these companies can exceed the total contributions of all the other state- run enterprises. As half of the Ukrtelekom shares are expected to be sold by the end of the year, this company will be the last to have its dividend rate fixed. As to Naftohaz Ukrayiny, it is most likely to turn again to the government for exemptions on the grounds that it must service a huge debt to Russia’s Gazprom as well as implement investment programs to prospect for new oil and gas deposits. This will inevitably trigger a covert struggle involving various political and economic factors.
The implementation of SPF proposals will depend to a large extent on whether the cabinet and the SPF will consult managers instead of imposing a fixed plan of contributions on them. And, of course, enthusiasm to pay dividends will be further determined by the state’s readiness to support the companies whose shares are being managed by the Cabinet of Ministers and the State Property Fund. The SPF expects to increase the collection of dividends by a third next year.
