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Ukraine’s Government Agrees to Restore Tax System for Protesters

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Dec. 1 (Bloomberg) -- Ukraine’s government said it will restore the tax system for self-employed people, changing a proposed tax code that sparked two weeks of protests by small-business owners.

The government and business representatives today signed a memorandum of cooperation on the code, according to the statement on the Cabinet’s website.

“Talks were not easy but the sides found mutual understanding and agreed upon all disputed issues,” Finance Minister Fedir Yaroshenko said in the statement after a meeting with protesters. “The memorandum allows us to find the right way so that entrepreneurs can work normally.”

Ukraine’s President Viktor Yanukovych yesterday vetoed the proposed tax code, approved by parliament on Nov. 18. A working group appointed by representatives of small and medium-size businesses, the president’s office and the government will propose changes to the document, he said. The president said he may send an amended draft back to parliament after reviewing ideas on Dec. 2.

The Cabinet needs the legislation to be approved to allow parliament to adopt the 2011 budget before Dec. 20 in order to get the next International Monetary Fund’s loan tranche. Ukraine pledged to narrow next year’s deficit to 3.5 percent of economic output from 5.5. percent in 2010 to qualify for IMF loans. The Washington-based lender’s board is scheduled to vote on releasing a $1.6 billion installment by the end of December.

The government said the bill would crack down on the gray economy, spur investment and increase budget revenue after Ukraine’s first recession in a decade.

Proposed Changes

The tax bill would cut the corporate income tax rate by 2 percentage points a year through 2014 and reduce the value-added tax to 17 percent from 20 percent in 2014. It also plans to limit the number of self-employed people who qualify for an increased flat income tax.

Thousands of self-employed workers, who make up 19 percent of Ukraine’s workforce, staged rallies starting Nov. 16, enduring rain and snow to argue that the legislation would raise taxes for them and give breaks to the rich.

The government also said today that “heads of departments who made mistakes during the tax code preparations will bear responsibility,” according to the statement.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net.

To contact the editor responsible for this story: Willy Morris at wmorris@bloomberg.net.

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