Since April 1 till October 1 only agricultural manufacturers may pretend for VAT compensation at grain export; and only for the product grown at the area of “permanent usage”

The question “to be or not to be” VAT compensation at export operations with cereals and oil-bearing crops worried agrarians for several months. After long consultation and negotiation the changes in Tax Code on “grain” VAT are the following.

According to the text of the Law on preventing financial catastrophe and creating premises for economic growth in Ukraine, printed today in “Golos Ukrainy”, till October 1 VAT compensation at inner operations with grain is realized only for manufacturers of cereals and seeds of oil-bearing crops and for the first purchaser, also for Agrarian Fund when purchasing such goods with VAT.

As for VAT compensation at cereals and oil-bearing export, only agricultural manufacturers may pretend for it and only for the volume grown by themselves.

VAT limitation is traditionally valid for operations with rice, buckwheat and soya.

There is an interesting norm in the text of the Law – VAT is to be compensated for agricultural manufacturers of the goods grown at areas owned or of permanent usage. As it is known agrarian holdings are not owners of processing agrarian areas. Land allotments are used by companies on the right of long-term rent. It is not clear if long-term rent is considered to be a permanent usage by opinion of legislators. If not then none of big holdings may pretend for VAT compensation.

Indirect confirmation of State refusal to pay VAT at grain export may be words of the Head of Ministry of Finance Alexandr Shlapak. “Came to the following compromise… To implement the norm on VAT exemption of grain and technical crops export in the format it is written in acting Law not from January 1 but from October 1”, stated Shlapak before voting for the Law in draft.

Case history 

At the end of 2011 Verkhovna Rada brought changes to Tax Code to exempt export operations on cereals and oil-bearing crops from VAT payment and, correspondingly, its compensation from State. The term of norm validity ended on January 1, 2014. They explained this limitation in the Government by the lack of State Budget. 

On January 19, 2013, they voted in Rada for the Law authored by the Head of Parliament Committee on Tax and Custom Policy Vitaly Khomutynnik “On changes to Tax Code on rates of certain taxes” (No. 713-18) which inter alia regulates taxation of operations at cereals and oil-bearing export. President Viktor Yanukovich signed the Law on December 27, and on December 28 it was published in official media.

According to the Law of Khomutynnik, since January 1, 2014, operations with cereals (except rice and buckwheat) and technical crops (rape and sunflower) except supply and export of grain and oil-bearing by their manufacturers or companies purchased the good immediately from manufacturer, were exempted from taxation. Thus, agrarian companies-manufacturers and companies purchased the good immediately from manufacturer might pretend for VAT compensation.

Market affect

Will the refusal of VAT compensation at grain export influence cereals price? Experts’ opinions differ.

“Due to VAT compensation at grain export national agricultural manufacturer income will rise. Profitability of manufacturing which is almost at zero level now will rise for 10-12%”, say in Ukrainian Grain Association.

“If State compensates VAT in regular mode, 30% of VAT sum might be received by agrarians. 30% at present price is 50-100 UAH at 1 ton of grain. This is significant sum for agrarians”, considers Gennadiy Novikov, Chairman of Agrarian Union of Ukraine.

On opinion of Nikolay Vernitskiy, Director of informational and analytical company “ProAgro” VAT compensation will not affect seriously pricing process at grain market.

“During several years traders did not put VAT compensation to their budgets, they did not believe they could really receive this money. Everything done during previous years in the sphere of VAT compensation was done for State companies. They were the biggest receivers”, said Vernitskiy.

He underlined that in case of VAT compensation only for agricultural manufacturers they will be able to get VAT compensation not for the whole grain they’ve supplied. “Big national holdings export not only their own grain but they purchase actively from other manufacturers”, stated the expert.

During last several years namely Ukrainian manufacturers claimed for VAT compensation at grain export. International traders were against this. Why? It’s not a secret that VAT compensation process at export operations in Ukraine is not transparent. Even when VAT was nominally compensated, not everybody got the real money from the State. International traders are worried about non-transparency and corruption, so they prefer working in same condition – when nobody gets VAT compensation.

Upon the estimation of agrarian associations in case of transparent mechanism of VAT compensation the State is to compensate to grain traders annually from 5 to 8 billion UAH.

Source Delo