Reform Index Quarterly. Quarter I, 2019

The pace of reforms in Q1 2019 was the lowest since the index began (since the beginning of 2015). Positive changes to the rules of the game occurred in the areas of business regulation (abolition of regulation of prices for medical products, introduction of electronic prescriptions) and public finances (monetization of subsidies). Anti-reform (abolition of criminal liability for illicit enrichment) was recorded in the direction of “fight against corruption”.

Main events of the round

• Cancelation of the regulation of prices for medical products, (Reform Index №105) , +3.0 points 
• introduction of electronic prescriptions for the reimbursement of medicines (Reform Index №105), +2.0 points
• monetization of housing subsidies (Reform Index №103), +2.0 бала,
• ratification of the MLI (Multilateral Instrument) Convention, on counteracting to confront the dilution of the tax basis (Reform Index №106), +2.0 бала.
• abolishment of the  article on the criminal liability for illegal enrichment. (-3,0 points, (Reform Index №105 )

Anti-reform was recorded in this round – the  article of the Criminal Code on illegal enrichment  has been declared unconstitutional by the Constitutional Court

According to this decision, the acquisition  ot the assets by the official of a governmental body in the absence of evidence that can confirm the legality of it, can not be grounds for criminal prosecution.

In Ukraine, criminal liability for illegal enrichment was introduced in 2011. The Verkhovna Rada amended the article of the Criminal Code several times (368-2).

In 2014 та 2015 editions of the Criminal Code , the norm of illicit enrichment was brought into line with international recommendations   (1, 2). In particular, such changes to the law were part of the commitments Ukraine made in its cooperation with the IMF in the 2014 memorandum .

In December 2017, a group of 59 people’s deputies appealed to the Constitutional Court with a constitutional petition, claiming that  Part 1 of the Article 368-2 of the Criminal Code contradicts a number of constitutional principles. According to the People’s Deputies, criminal liability for illegal enrichment  contradicts the following constitutional principles: protection from self-accusation, presumption of innocence, the right to a fair trial and equality of parties, the principle of legality, the principle of “non bis in idem” [a person can not be brought to legal liability twice for the same offense – ed.] and the principle of absence of retroactive force in time.

In February 2019, the Constitutional Court adopted the decision, which recognized that the article of the Criminal Colde  on illegal enrichment as such as incompatible with the Constitution of Ukraine.

At the same time , EU Consultative Mission in Ukraine analyses the Article 368-2 of the Criminal Code and came  to the conclusion, that article is compatible with the provisions of the Constitution.

In total, NABU and SAP (Specialized Anti-corruption Prosecution)  investigated 65 criminal proceedings against illegal enrichment, but no suspect was held accountable. After the decision of the Constitutional Court, all cases investigated by NABU and SAP were closed. Four cases that had already been referred to the court would be closed at the nearest session.

In total, in Q1 2019, 15 regulatory acts were adopted, which experts assessed as reformatory. The average Reform Index rating of these laws and regulations was +1.4 points (34 normative acts were adopted in the previous quarter, their average score was +1.2 points).

Main directions of reforms in Q1 2019:

Business Regulation

The key developments in this area are a regulation that abolishes the regulation on prices for medical products, simplification of accreditation of medical institutions, the abolition of the mandatory use of a “book of reviews and offers” and the law on food labeling.

The regulation of prices for medical products was abolished Скасовано регулювання цін на медичні вироби (Reform Index №105)

Prices for medical products procured for the  governmental funds, should  not exceed bulk-retailed prices plus 10% margin.

This regulation was introduced in 2008 and created significant barriers to entry into the market of leading manufacturers. This allowance was often not sufficient to cover suppliers’ costs. The price of such products should often include installation, staff training, software provision and more. Suppliers must also open points for servicing purchased medical equipment. All of these costs often exceeded 10% of the legal requirements. Therefore, suppliers either use shady schemes and overestimate the cost of imported products or refuse to work with state hospitals.

By the Resolution No. 184 of March 6, 2019, this regulation was repealed. This will help attract new suppliers to this market. It can also be expected that there will be no need for shadow schemes that suppliers used to inflate import prices.

In order to understand how this decision will affect purchasing prices, the MoH will monitor. By March 1, 2020, the MoH will be required to provide the Cabinet with information on monitoring results and proposals for regulatory improvements.

Accreditation of medical institutions is simplified

Previously, all health care institutions, except pharmacies, had to undergo an accreditation procedure. The first accreditation is held two years from the beginning of the institution’s activity, the next – every three years. This procedure was conducted by the Main Accreditation Commission at the Ministry of Health.

Decree No. 215 of March 13, 2019   changed that rule. Accreditation is now voluntary, but having an accreditation certificate gives institutions a number of benefits. Non-certified institutions will not be able to issue hospital records list of absence, provide services in assisted reproductive technology and transplantation, have abortions, and perform clinical trials.

Institutions can now be accredited immediately after obtaining a license and not wait for two years. The set of documents submitted for accreditation will be reduced. For institutions that have changed their legal status – from budget funded establishments to communal noncommercial enterprices (CNEs) – the  existing accreditation certificate will be prolonged continue without accreditation.

Obligatory  use of the book of “reviews and suggestions” was canceled.

The Book of Complaints and Proposals is a Soviet-era archaism that has long played no role in protecting consumer rights. However, trade and food establishments were required to keep these books. By Resolution No. 168 of March 6, 2019, this requirement was canceled.

New food labeling rules approved

By Law 2639-VIII  of 06.12.2018, the rules for the labeling of foodstuffs are harmonized with EU regulations. These changes implement the provisions of Chapter IV (Sanitary and Phytosanitary Measures) of Title IV, Trade and Trade Related Issues, of the EU-Ukraine Association Agreement. 

The law establishes general requirements for the information that food producers are required to provide to consumers. In particular, consumers should be provided with information on the content of food additives, excipients or products that may cause allergic reactions or intolerance.

Social protection

Monetized subsides

By  Resolution of February 6, 2019, No. 62, the government determined who and how will receive cash assistance from the state for the payment of housing and communal services (Reform Index №103).

It is expected that 4 million households will receive a monetized subsidy, 70% of which are retired people. Pensioners will receive the subsidy with a pension. Employees of the budget sphere serviced by “Oschadbank” will be able to receive it on their cards. Other citizens will be able to receive a subsidy in any branch of “Oschadbank”

The process of  providing monetized subsidies starter   on 1st of February 2017

The recipients of the monetized subsidy are expected to be interested in saving on the consumption of housing and communal services. This, in turn, should contribute to greater energy efficiency.

One of the biggest risks of subsidy monetization is the possible increase of debts  of utilities pyment from households receiving subsidies. According to the responsible ministry , as of the end of April 2019, only 75% of subsidized households paid for utility services on time. Citizens who receive money but fail to pay on time for utility services run the risk of being left without a subsidy until they pay off their debt.

Preparations for the presidential election have had a significant impact on the pace of reform – it has slowed down to the lowest level  within the period of index existance. Political forces in the parliament, which will continue to work for months in its current composition, have the opportunity to demonstrate to voters their usefulness through important reforms.

Reforms initiators

At the initiative of the government, were adopted  11 laws and regulations that change the rules of the game in the economy, with an average score of +1.5 points. The most important of these are abolishing the regulation of prices for medical devices (Reform Index №105), reimbursing medicines through electronic prescriptions (Reform Index №105), introducing monetization of housing subsidies (Reform Index №103), ratifying the MLI  tax dilution convention (Reform Index №106).

In the previous quarter, the Cabinet of Ministers initiated 16 progressive legislative changes with an average score of +1.0 points.

Parliament in the 1st quarter initiated 2 progressive laws ( with an average  of 1.3 points) – on food labeling (Reform Index №103) and on imports of defense products (Reform Index №103). In the previous quarter, 10 reform laws were adopted on the initiative of the People’s Deputies, with an average of +1.6 points.

The National Bank has adopted 2 resolutions with an average score of +1.0 points. There were 8 resolutions in the previous quarter, with an average score of +1.5.