The full depth of the procurement crisis in the Ministry of Defense can be observed in the example of petroleum products. Unlike weapons or food, the types of fuel are limited (gasoline, diesel, jet fuel), its quality is clearly standardized throughout the world, and prices are monitored by global and Ukrainian quoters.
It seemed that purchasing fuel was very simple.
But for military functionaries this task turned out to be overwhelming. Over the past 10 years, we have witnessed a painful transformation of the “fuel” procurement system, when the system was twisted, it resisted, instead of the cut-off “dragon” heads, new ones grew, and as a result, the army arrived in February 2022 with empty tanks.
The situation was then saved by Ukrainian businessmen, European partners and the Medvedchuk pipe, from which the technological fuel was pumped out.
There were hopes that with the start of “full-scale” the jokes would end and everything would be put on solid and reliable military footing. But, unfortunately.
In March 22, it is not clear who developed, and the Cabinet of Ministers approved, Resolution 178, which they allegedly wanted to help.
“In order to carry out mobilization tasks under martial law, set a 0 VAT rate for refueling (refueling) or providing transport for the Armed Forces of Ukraine,” the document says.
The resolution turned out to be so illiterate that the Ministry of Defense was afraid to implement it and continued to purchase fuel in 2022-2023 with VAT.
In 2023, the State Audit Service accused the Ministry of Defense of violating Resolution No. 178 of March 2, 2022, since VAT was included in the price of fuel. Think about it, the state suffered losses in the form of VAT paid to the budget.
The Prosecutor General's Office has joined this absurdity, bringing charges against suppliers of petroleum products and demanding the return of the VAT that was paid to them by the Ministry of Defense.
And also take into account inflation of 3% per annum.
As a result, Ukrtatnafta must pay more than UAH 2 billion, SOCAR UKRAINE TRADING HOUSE LLC - UAH 217 million, Energomed+ LLC - UAH 232 million, Alliance Energo Trade LLC - UAH 282 million, OKKO- LLC Business Partner - UAH 54 million.
That is, when in 2022 fuel was urgently needed and suppliers imported it, paying VAT to the budget at the border, everything was fine. When, in 2023, officials came to their senses a little, then those suppliers should take out of their pockets the VAT that they paid to the state?
Further. The war continues, and the army's need for fuel continues. But who will want to supply it? In addition to the above problems, there are others. Resolution 178 is in effect!
So, to prevent the described problems, the Ministry of Defense (or rather the newly created “State Logistics Operator” - GOT) began to hold tenders for the purchase of fuel with VAT at a rate of 0.
So, let's model the VAT movement in this case. Conventionally, a ton of fuel costs 50,000 UAH. In addition, at the border the importer will pay 20% VAT (most likely on credit funds), and will receive a 10,000 UAH tax credit on his VAT account.
That is, the importer’s delivery costs will be 60,000 UAH. Since DOT buys without VAT, the price will be 50,000 UAH (we believe that we are talking about some kind of volunteer oil trader who works without profit).
But the VAT account contains 10,000 VAT, which, for example, cannot be returned to the bank that issued the loan. Theoretically, you can try to return it to the Tax Service, but in real life this is an unrealistic scenario.
“This is a one-way street, everything goes exclusively to the budget, there is no turning back,” entrepreneurs say.
To return this money to the bank, there is only one way left - to increase the price for the Ministry of Defense by the same amount of VAT. That is, in our case, sell for 60,000 without VAT and then return 10,000 to the bank. But then wait for a publication in Our Money about inflated prices for the army. Nobody wants to be the heroes of these publications.
So, the noble impulse for “zero” VAT has turned into a mechanism that destroys competition at the Ministry of Defense auctions and provokes an increase in prices for all goods (not just fuel) for the army.
What to do?
The first option, the simplest, is to cancel Resolution 178 regarding “zero” VAT by resolving the issue of supplies that were made from March 2, 2022. The VAT that the state provides to the army for the purchase of fuel will ultimately end up in the state's pocket in the form of VAT paid by the importer at the border. This is transferring public money from one pocket to another.
Second option. Use the tax bill mechanism, which has already been well tested in the supply of aviation kerosene in terms of excise tax administration. Then the importer will not pay VAT at the border, will provide the customs with a bill of exchange and will pay it off after the fuel is accepted by the Ministry of Defense. But, again, we cannot do without editing Resolution 178 and other regulations.
This circus with fuel purchases must end. Because it hasn't been funny for a long time.
