Every $100 million in tax breaks provided to residents of industrial parks or special economic zones in Ukraine will bring the country $1.5 billion in investment.
So believes Philipp Grushko, a member of TIS Supervisory Board, founding partner of the SD Capital investment fund. He explained his point in the op-ed article named "How to catch up and overtake Dubai" for the Mintrans magazine.
Philipp recalled that in the mid-90s, 9 territories of priority development with a special regime for investment activities and 12 special economic zones were created in Ukraine, which did not lead to an investment boom. Today, 8 out of 44 industrial parks registered operate, hosting 2 resident companies on average. Currently, iPark in Yuzhny has the most advantageous position among the industrial parks of Ukraine: due to integration with TIS, the largest country’s private port, its residents have access to utilities, a unique railway infrastructure, a customs zone shared with the port, as well as access to key ports around the world.
“By 2004, all Ukrainian SEZs received only $171 million in investments, and for the most part, it was money from Ukrainian business. A non-transparent corruption mechanism for giving tax preferences led to significant losses in the state budget, and in 2005 tax breaks for SEZs and TPDs were cancelled,” Mr. Grushko said.
According to Mr. Grushko, the current law 5018-VI “On industrial parks” could create zones of attraction for foreign investment. However, the authorities treat such projects as “tax loopholes”, thus not offering business effective incentives. “Residents of industrial parks in Ukraine cannot count on tax holidays or duty-free imports. The state offers them exemption from taxation on imported equipment and from equity participation in the infrastructure development, as well as the hope for a possible allocation of interest-free loans,” he explained and cited the example of the world's largest free trade zone JAFZA, which brings Dubai 24% of GDP. Its residents, the expert reminds, are offered an impressive list of monetary preferences: 0% income tax for 50 years with the possibility of extension, 0% import and re-export duties, 0% on employee income, no currency restrictions and no restrictions on capital repatriation.
The expert calculated that neglecting to stimulate investors Ukraine lost about $3.7 billion of potential investments in 2018-2019 alone since a number of transnational companies refused to create production in Ukraine and built factories in industrial parks of other Eastern European states.
Mr. Grushko also listed the preferences that need to be introduced at the state level to stimulate the development of technoparks in Ukraine, following the example of JAFZA. To do this, it is necessary to introduce tax references for technoparks residents to ensure easy registration of enterprises and obtaining administrative services on the basis of the One-Stop Shop JAFZA principle. “This will allow creating industries with high added value and ensuring economic growth in the country,” he says.