Important Draft Laws. Issue 7: Control over Lobbying and Delay of Land Reform

During the past two weeks, 23 draft resolutions and 48 bills were registered in the Verkhovna Rada of Ukraine. One bill was authored by the President of Ukraine, ten by the Cabinet of Ministers, and 37 by people’s deputies. During the fortnight, lawmakers paid particular attention to anti-corruption measures, as evidenced by bills related to ethical lobbying and monitoring of international financial assistance to Ukrainian enterprises. Additionally, among the important topics during this period was enhancing social protection for military members.

Benefits and Social Guarantees for military personnel and their families

Bill No. 10329 proposes amendments to the law on financial support for service members being treated for injuries related to the defense of their homeland. It suggests legislatively establishing provisions currently regulated by a Cabinet of Ministers resolution. Specifically, the bill will add the right for service members to receive payments for military injuries not only during their stay in a hospital but also during their transfer to a medical facility or while on medical leave after a severe injury.

Additionally, it will specify the monthly compensation amount (40 times the subsistence minimum for non-disabled individuals; starting in 2024, it will be UAH 120,000. Currently, it is determined by the resolution mentioned above and is UAH 100,000). Transferring these provisions from the resolution to the law is important because amending the law is a more complex process (the consideration of a bill involves several readings and discussions in committees and the session hall) than changing the Cabinet of Ministers resolution.

Additionally, the bill provides for compensating service members from the day of sustaining an injury, even in cases of repeated hospitalizations due to previously suffered injuries.

Bill No. 10330 proposes to increase the linkage of military pensions to the current financial support of military personnel. However, experts have warned that such a linkage could significantly increase budget expenditures because any increase in the financial support of active-duty service members leads to higher military pensions. In recent years, the government has attempted to circumvent this link by increasing allowances for military personnel rather than their base salaries. The bill aims to close this “loophole” and calculate pensions based on the total payment received by active-duty service members. Therefore, the author’s assertion that the passage of this bill will not lead to an increase in state budget expenditures does not align with reality. Given the current challenging state finances, adopting this bill is inadvisable.

The purpose of Bill No. 10343 is to implement NATO standards in the medical support of the Armed Forces of Ukraine. The law expands the powers of the Ministry of Defense, notably by stipulating that based on NATO standards, the Ministry must approve clinical protocols, tables of material and technical equipment, and standards for providing pre-medical and medical assistance during combat operations and in preparing security and defense forces.

Bills 10353 and 10354 introduce tax exemptions from value-added tax and excise tax on the import of passenger and cargo vehicles for participants in combat actions, individuals called up during mobilization, relatives of the deceased, and individuals whose vehicles were damaged due to military aggression during martial law and one year after its conclusion. Ukrainian citizens who have donated their cars to military units can also avail of this exemption. According to the project, each person can import only one vehicle with this tax exemption. The tax exemption does not apply to goods from countries occupying (aggressors against) Ukraine. The chances of this bill being adopted are low because implementing its provisions would lead to a decrease in revenues to the state budget of Ukraine, and it is currently impossible to estimate these losses (the explanatory note lacks information on the approximate number of individuals who may benefit from the tax exemptions for vehicle imports). In our opinion, establishing such tax privileges is not advisable, as it opens up significant opportunities for abuse. If there is a desire to support service members or individuals affected by Russian aggression, this can be achieved through direct financial assistance.

Protection of IDPs from debt collectors

Bill No. 10333 proposes to protect internally displaced persons (IDPs) who are registered as unemployed or disabled due to war-related events or whose housing has been destroyed or rendered uninhabitable by safeguarding them from debt collectors. This project applies only to those IDPs whose consumer credit agreements were entered into before the imposition of martial law. To benefit from this protection, IDPs must provide the lender with supporting documents, including information about their unemployed status, a medical and social expertise report in the case of disability, a certificate confirming their IDP status, and information about destroyed or uninhabitable housing.

On the one hand, this bill would ease the financial situation of vulnerable groups of IDPs by effectively allowing them not to repay consumer loans. On the other hand, passing the bill could result in losses for banks and financial companies due to an increase in “bad” loans. As of May 1, 2023, the volume of loans to the population (excluding mortgages and car loans) amounted to UAH 107 billion, of which 28% were problematic, compared to 9% at the beginning of 2022. This potentially represents “write-offs” of up to UAH 30 billion. Legislative protection from debt collectors could lead to a breach of credit discipline, even among IDPs capable of repaying their loans, and worsen the lending conditions for all individuals. 

Regulation of lobbying activities

Through Bill No. 10337 on ethical lobbying developed by the National Agency on Corruption Prevention (NACP). The project aims to regulate the interaction between lobbyists (lobbying entities), government bodies (lobbying objects), and interested parties (such as businesses). The main provisions of the bill are as follows:

1. Defining terminology: advocacy (the defense of public interests without seeking profit), lobbying entities (legal or natural persons engaged in lobbying on behalf of clients), lobbying objects (government and local authorities), subject matter (normative legal acts), lobbying (the influence of a subject on a target using lobbying methods), methods (including direct or indirect communication, preparation and dissemination of proposals, participation in events during the development of acts, invitations to participate in meetings, as well as the organization of public events and information campaigns), etc. 
2. Limitations on the application of the law: The law does not apply to diplomatic missions, media, political parties, associations of local self-government, scientific activities, and activities related to international technical assistance. The law also does not apply to advocacy.
3. Establishment of the Transparency Register: The bill introduces a Register containing information about lobbyists and their reporting. The Register’s data is publicly accessible, except for personal information.
4. Principles of lobbying: Lawful, transparent, accountable, responsible, professional, and ethical lobbying are established.
5. Limitations on lobbying: Lobbying is prohibited in some instances, such as judicial decisions, the imposition of martial law, etc.
6. Status of lobbying entities: An individual obtains the status when their information is entered into the Transparency Register.
7. Clients of lobbyists: The law restricts the rights of citizens and legal entities from aggressor states to be clients of lobbyists.
8. Rights and obligations of lobbyists: The law defines the rights and obligations of lobbyists, including reporting and adherence to ethical standards.
9. Monitoring and enforcement: The National Agency on Corruption Prevention (NACP) monitors compliance with the law and maintains the Transparency Register.
10. Effective date and implementation: The law comes into effect four months after publication and becomes effective simultaneously with creating the Transparency Register.

Furthermore, the government has already registered Bill No. 10373 regarding responsibility for lobbying law violations and is planning to establish Rules of Ethical Conduct for lobbying entities.

Financial reporting for enterprises involved in international financial assistance

Government Bill No. 10339 establishes a requirement for legal entities that receive and use international financial assistance to submit financial reports to the Ministry of Finance. An automated information system is planned to be created to achieve this. The Ministry of Finance will also set criteria for auditing firms that can provide services to such legal entities.

The project aims to ensure international financial assistance’s effective and transparent use. However, the bill imposes an additional bureaucratic burden on legal entities that receive international aid. Additionally, while the explanatory note to the bill mentions enterprises that receive international financial assistance, the definitions and requirements in the proposed legislation may also apply to civil associations that receive grant funds and funding from foreign donors. Therefore, clarification is needed to determine which legal entities would be covered by this law if it is passed.  

Land reform

In the Ukrainian Parliament, there are proposals (projects 10366 and 10369) to postpone the second stage of the land reform, which initially intended to allow legal entities to purchase land starting from January 1, 2024, and Ukrainian citizens to buy up to 10,000 hectares of land (currently limited to 100 hectares). The first bill proposes introducing the second stage from January 1, 2025, while the second bill suggests retaining the limit of 100 hectares per person until the end of martial law and for two years after its conclusion. However, legal entities would still be allowed to enter the market from 2024. The authors of both bills argue that increasing the limits on land sales during the military period is not advisable, given that many potential land buyers may currently serve in the Armed Forces of Ukraine.

Reforming the circulation of excisable goods

Bill No. 10346 on state regulation of the production and circulation of alcohol, alcoholic beverages, tobacco products, and fuel proposes rewriting the current law with the following several key innovations: 

• Introducing licensing for tobacco cultivation and the fermentation of tobacco raw materials. In this way, the government will regulate the entire process of tobacco product manufacturing, from the cultivation and fermentation of raw materials to the final sale of cigarettes. This is aimed at reducing the shadow market for tobacco products.
• Linking fines and license fees in this sector to the minimum wage (currently set in absolute amounts). For example, the annual fee for a license to engage in wholesale alcohol trade is UAH 500,000, and the bill proposes to set it at 85 times the minimum wage (which would be UAH 570,000 in 2023). Consequently, each year (or with minimum wage changes), the annual license fees and fines for violating license conditions would increase.