Farmers' VAT benefits in Ukraine may be cancelled

The new VAT model envisages compulsory registration of VAT payers with annual turnover exceeding UAH 2 million.

In addition, the ministry proposes that the number of the groups of income taxpayers under the simplified taxation system should be reduced to three (A, B, C), instead of four (I-III, IV). Agricultural producers of the fourth group will be transferred to the C group. It will include agricultural enterprises whose share of agricultural production in the previous tax year is equal to or exceeds 75% and revenue is UAH 2 million or less. It is proposed that a single tax rate for agricultural producers should remain unchanged – from 0.09% to 1.35% of the estimated price of each hectare of their agricultural land, depending on the type of the land.

Agricultural producers and the Agrarian Ministry have repeatedly stated that they were opposing the abolition of the special VAT regime, emphasizing that such move would lead to a decrease in livestock production.

The other tax reform draft developed by the Verkhovna Rada's tax committee envisages the abolition of VAT benefits for all agricultural enterprises, except for livestock producers. The draft tax reform also provides the introduction of direct subsidies for farmers affected by the abolition of the special regime. In general, the draft document provides a sharp reduction in tax rates, as well as cancellation of some taxes. Experts warn such changes could translate into a budget deficit estimated at UAH 200 billion.

In turn, the Finance Ministry proposes introducing a flat rate for key taxes – value added tax, personal income tax, corporate income tax, single social security tax – at the level of 20% each, with the moratorium to be introduced regarding any further changes to the Tax Code. The Finance Ministry did not specify the time frame for such a moratorium. According to the ministry's estimates, the budget deficit is capped at UAH 60 billion.