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21:06 PM Thursday, May 25, 2017
Finance
​Rada Approves Decentralization, Empowering Local Areas
By allowing local authorities to keep some tax revenue, local officials become more interested in attracting new businesses
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KYIV - Ukraine’s parliament has passed an important decentralization law, part of a wider drive to hand authority to raise budgets from Kyiv to elected local councils.

By allowing local authorities to retain some locally generated tax money, local leaders suddenly become more interested in attracting new businesses.

Decentralization, long seen as a key step to modernizing Ukraine, was launched in 2014 by Volodymyr Groysman, then a deputy prime minister and now the country’s prime minister.

"Today is a very important day for local administration, which can now look forward to expanding its options for development,” the government press service quoted Deputy Prime Minister Hennady Zubko telling the chamber before the vote. “This is the way forward to a new stage of decentralization reforms - opening up a space for cooperation between communes and subsequently for the consolidation of their influence on Ukraine’s economy.”

Councils Join Regional ‘Communes’

The “United Territories” law allows village councils to “buy into” a larger organization, a commune, or “hromada” in Ukrainian.

When the changes started in 2014, there were 11,000 village councils. The aim was to permit the centralization of these councils into larger communes of approximately 10,000 people and to empower these bodies with easier access to tax revenues. Centralization also makes sense as rural populations decrease.

By last December, 366 communes had been organized in Ukraine.

Previously, funds for village councils, vestiges of Soviet-era collective farms, or “kolkhozy,” were largely allocated by Kyiv. Routinely, there was not enough money for projects, like road repair.

Communes Can Keep Some Tax Revenue

The law is backed by the Reanimation Package of Reforms, an alliance of non-profit groups that backs decentralization, according to Iryna Solomko, the group’s spokeswoman.

“There are basic standards for the ‘hromada’—in terms of size, geography, economic viability, administrative services and population,” she said in an interview. “In the first period of these reforms, nobody was sure the model would work. Not everyone wanted to join.”

Some village councils organized into communes, or hromady. Others stayed independent.

“Hromady have the ability to levy certain special taxes that village councils do not—sales taxes, excise taxes, a portion of income tax, and taxes on natural resource extraction,” Solomko said.

Decentralization discourages theft and corruption, she asserted.

Populist politicians worry that decentralization will diminish their ability to reward party supporters. Other Kyiv officials worry that it means less money for the national budget.

So far, communes seem to provide more effective tax collection and more accountable local government. They have created opportunities for contractors and investors to pitch business ideas. Local leaders, eying increased tax revenues, suddenly become more business friendly.


For comments and story tips, please email UBJ Kyiv Correspondent Adrian Bonenberger at this address: adrian.bonenberger@theubj.com

Photo: Speakers pause in Kyiv at a seminar on decentralization, a structural change that has been discussed and refined since the 2014 Revolution of Dignity. (Credit: UNIAN/Boris Korpusenko

Posted Feb. 13, 2017

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