From which direction and how is Transcarpathia being supported?

Recently one can hear a lot about the support Transcarpathia receives from Hungary, but very little is said about the attitude of the central budget towards the region. Based on available data, we analyzed various projects connected to Transcarpathia.

The road-financing project titled “An experiment on road infrastructure” has been in force in Transcarpathia since 2017. The main point of the project is that 50% of the taxes paid above the previously planned amount is spent on the renovation of the road network of the region. However, in terms of this project Transcarpathia has received hardly any funds from the state budget, despite the fact that there are 10 operating borders-crossing stations in the region. In 2017, only 362 million hryvnias were transferred from Kyiv, which is 107 million less than the expected amount. Meanwhile, the program has been working in the neighboring Lviv region since 2015, where 2,5 billion hryvnias were transferred here for the renovation of the road network between 2015 and 2017.

If we take a closer look at the investments arriving to Transcarpathia, we see that the region receives 1,3% of all the investments in Ukraine, while Lviv region receives 5,4%. The amount of medical and educational transfers to Transcarpathia is 2.8% of the overall Ukrainian transfers, while for Lviv it is 5.6%. Similar situation occurs in the case of the subsidies for the two regions: Transcarpathia receives 3,2% of all the Ukrainian subsidies, while Lviv region receives 6,9%. From the State Regional Development Fund, Transcarpathia received 1.4% of the investments between 2015 and 2017, while Ternopil region received 47.1% of the transfers paid from the Fund, i.e. 44 times more than Transcarpathia.

The regional budget of Transcarpathia was 6.4 billion hryvnias in 2017, of which subsidies and other transfers amounted to 5.4 billion hryvnias, accounting for 84.4% of total revenues. That is, the region can create 15% of the budget on its own. In Lviv region, self-sufficiency is 20%, but as we have seen above, there are many central sources of income. Transcarpathia, on the other hand, has to solve its problems on its own.

The Egán Ede Economic Development Program provides significant help in this case. This program has been operating in Transcarpathia since 2016; at first it was developed by Hungary to support the economy of Hungarians in Serbia, later its support was extended to Transcarpathia.

According to public data available for everyone, the region receives 30 billion Hungarian forints (3 billion Ukrainian hryvnias). Most of the support (9%) has been spent on equipment, as well as for the development of tourism. In 2016, more than a thousand businessess received the financial support; in 2017 this number was quadrupled (4606). The amount of the investment also increased considerably – in 2016 it was 213 million hryvnias in total, while in the recent cycle it reached 1,7 billlion hryvnias. The majority of the applicants submitted their proposals in the category of agriculture, so these businesses received the most support.

The financial aid has a significant effect on taxes. Since there is no official source of tax statistics, we have assessed the tax effect by assessing the entrepreneurial character of the applicants. Most businesses are in the private enterprise category. Regardless of the enterprise form and tax group, all entrepreneurs and businesses pay a so-called “single social benefit” (in 2018 this value is 819 hryvnias/month/entrepreneur), which flows into the central budget. It can be said that thousands of new businesses have been opened in Transcarpathia due to the program. If this development program had not been realized, in 2016, it is estimated that the Ukrainian budget would have received 21.9 million hryvnias less income. In addition, nearly 9 million hryvnias could be paid by entrepreneurs in terms of the simplified entrepreneurial tax, and this value could have risen up to 17 million hryvnias by 2018. The value of the single social benefit grew to 44.2 million hryvnias in the second round of the program.

According to our estimations, the supported businesses generated more than 92 million hryvnias in tax revenues for the central budget and local governments in recent years. This estimation does not contain income generated when a particular company employs people and pays the social contributions for the employees; also it does not contain the taxes after the income of the businesses; if the business is in the general income tax category, this means another 18% tax revenue per business. Since we do not have additional data about the businesses, we cannot provide a more accurate evaluation.

The significance of the program is not only in the context of generating taxes, but also in the fact that it “cleansed” the economy, so those who did not previously have an officially registered company legalized their businesses to participate in the program.

During recent years, Hungary has implemented not only economic development programs, but also programs in other social and cultural areas, helping the Transcarpathian people, mostly Hungarians, but also the Ukrainian-speaking population as a gesture. The individual supplementary income support provided for healthcare workers, kindergarten teachers, teachers, as well as for child catering and the Hungarian-Hungarian contact support was also subject to official taxation. In 2016, these subsidies amounted to 2 billion 213 million 888 thousand forints (about 230 million hryvnias), with a tax effect of 398,500 hryvnias through personal income tax, while the army tax amounted to 332,000 hryvnias.

Dr. Róbert Bacsó, Gábor Pataki
Department of Accounting and Taxation
Transcarpathian Hungarian Institute named after Ferenc Rákóczi II