Tax code amendments propose elimination of special VAT regime for agriculture from 2016
The revised Memorandum of Economic and Financial Policies of the Ukrainian authorities, prepared as part of cooperation with the International Monetary Fund, includes a proposal to eliminate the special value-added tax (VAT) regime for agribusinesses in Ukraine as of January 1, 2016.
"We plan to submit to parliament by September, Tax Code amendments, which will introduce the general VAT regime in agriculture effective January 1, 2016. This measure will yield about 0.3% of GDP," the memorandum said.
The special regime currently allows farmers to keep the sum of VAT charged on the value of supplied goods and services, which should be transferred to the national budget under the general regime. The special regime was stipulated in the coalition agreement which was signed by the leaders of the ruling Ukrainian political parties in November 2014 which will be in effect until 2018.
Large agribusinesses repeatedly criticized the cancellation of VAT benefits, saying that it may trigger a decline in agricultural output and a reduction in payments to the national budget due to a decrease in farm produce exports.
The original wording of the memorandum with the IMF also included the provision to eliminate the special VAT regime.
On July 16, Ukraine's Verkhovna Rada passed draft law No. 2173a, which suggests a change to the system of electronic administration of VAT and the cancellation of VAT benefits for agrarians. A group of lawmakers headed by Oleksandr Bakumenko from the Petro Poroshenko Bloc blocked the parliament's rostrum, demanding that the provision cancelling the special regime be deleted from the bill. The group insisted it was needed as the Ukrainian agrarian sector is facing a difficult economic situation.
Ukrainian Prime Minister Arseniy Yatseniuk in turn accused the lawmakers of lobbying for large agricultural holdings' interests and suggested a compromise when the special regime will remain for small farms whose land bank is up to 3,000 hectares and annual revenue does not exceed UAH 50 million.
Yatseniuk said that such farms account for 98% of all agricultural producers registered in Ukraine.
After the provision was withdrawn from the bill, the document was supported by 233 MPs.
