Ninety-day respite extension on VAT offset may deprive Belarus of some imported goods

The Belarusian government views a 90-day extension of respite on VAT offset as one of the measures for stabilising the economic situation in Belarus. Introduced at the end of last year, this measure de facto forces importers to lend money to the government using their own working capital. Most likely, such a prolongation of respite will lead to a shortage of certain imported goods.

According to Decree no. 361, “On certain issues of tax assessment, accounting, revaluation of assets, and rent collection”, dated July 21st, 2014, a 90-day respite on VAT offset for companies which import and sell finished goods was introduced from July 25th to December 31st. Such a respite led to a 5-10% increase of importers’ additional costs. The importer could not account for the paid VAT on imported goods which led to VAT being paid once again. Lacking their own assets, companies borrowed money at a 25-40% interest rate which undermined their financial health.

A deteriorating economic situation, combined with new governmental measures to stabilise the economic situation, resulted in a more challenging operational climate for a significant number of importers. Currently, the interest rate is 50% and even higher. Price increases are only allowed if the profit margin is at 3%. At the same time, it is impossible for the importers to recompensate for the devaluation of the national currency. Raising prices on raw materials and goods from the Customs Union is banned. The demand of durable goods is likely to stay at a very low level due to the fact that both Belarusian and Russian customers purchased them en masse in late 2014. All of the above will lower importers’ earning capacity for 2015.

The Belarusian government views the current economic situation as critical. A 2015 national budget adopted in late 2014 now needs to be rewritten from scratch. Expected income from export duties on petrochemicals ($ 1.5 billion) may not be received fully due to falling oil prices. Belarus needs to repay more than $4 billion in 2015, and gold and forex reserves are insufficient. Cancelling a 90-day extension of respite on VAT offset would have led to a substantial amount of money being repayed to the importers. There are simply no funds in the budget for this.

Therefore, extending decree no. 361 for the rest of 2015 is the most obvious step that the government could take. This may force certain importers to stop all their activities in Belarus which consequently, would lead to a smaller range of imported goods being on offer.

While decree no. 361 has ceased to be effective for now, its prolongation may soon be possible