It is already the middle of March, and not a single agricultural producer has yet received a refund of the VAT paid, though this was promised by the government as a substitution of the special regime.
Agrarians are patiently waiting for the government to finally pass all the necessary bylaws in order to receive their subsidies, and time goes by meanwhile.
They will not receive money for January 2017 – that’s for sure; as for February – this is still not known.
Let’s recall the story behind. During 1998-2016, the “special regime of VAT” was legislatively established for agrarians. The special regime means that the tax was paid to a separate account and from there it could be spent by producers for specific purposes.
Then, for various reasons, the IMF started cracking down on such a form of state support for village, citing in particular that the special regime is used in schemes for tax evasion and various tax abuses.
In December 2015, the special regime was abolished by the changes introduced to the Tax Code by the government of Arseniy Yatsenyuk.
At the same time, 2016 became a kind of transition period with a corresponding percentage distribution of the special regime: the state was paid 85% of VAT on operations with crop production, 20% VAT on livestock, 50% VAT on all other agricultural operations that fall under the special regime.
The remaining VAT agrarians kept to themselves. In December 2016, an agreement was reached together with the government. Under this agreement it was decided that certain areas of agriculture should have the support of the state. In the first place these are livestock farming, poultry farming and dairy production.
The IMF was still on guard, so the main difference between the special regime and the new form of support was that farmers should work on a non-preferential basis, pay VAT to the budget, but together with their VAT declarations they have to submit an annex with a list of products sold to which state support could apply.
Part of this VAT within the allocated funds is returned to them in the next month. It was decided to apply the following principle: the industries that need support were identified, they pay VAT on a non-preferential basis, but in the annex to the declaration they indicate how much VAT was paid when selling products for which there is state support. The Treasury gives them back the proportional share of VAT.
In the state budget for 2017, 4 billion hryvnias are factored for this support. However, for this law to be implemented the subvention distribution procedure has to be adopted in the form of a resolution of the Cabinet. It was approved by the government only in February 2017 (entered into force on February 22, 2017) and contains what is not provided for in the law.
In particular, the given resolution offers to provide the subvention in proportion to the total VAT amount paid by an agrarian enterprise, and not in proportion to the VAT paid on preferential activities.
This means that in the first half of 2017, agrarians may receive no subsidies, though they are entitled to them. Experts say that such an arbitrary interpretation by the government of the regulations of the law leads to the fact that agricultural producers that carry out subsidized activities together with the crop production – and these constitute the majority – will be deprived of the opportunity to receive subsidies in the winter and spring of 2017.
One of the key features of growing crop production is its seasonal nature, consisting in a temporary gap between the investment of resources and the acquisition of income from the sale of crop production.
In the first half of the year, the volume of crop supplies production is extremely low, at but at the same time it is necessary to buy seeds, fuel, fertilizers, and take care of the equipment. As a result, the producers will have a tax credit, but there will be no tax liabilities due to the lack of supplies of crop production.
As it has already been noted, the vast majority of producers operate simultaneously in the field of livestock farming and in the field of crop production. That is, the obligations received from the sale of livestock products in the first half of the year will be reduced for the whole received “crop production” tax credit, including when buying seeds, fuel, plant protection products.
Thus, agricultural producers will be deprived of the right to receive a budget subsidy, since the amount of liabilities from livestock farming will be less than the aggregate tax credit received during the production of all types of products.
On the basis of the results of the first half of 2017 the State Fiscal Service together with the Treasury will have the right to say to the agrarians: “You have a base of nil, so we do not owe you anything.”
Thus, in the first half of the year the government saves on agrarians. What will the picture look like in autumn? There will be a large total VAT paid on the sale of crop production, to which the share of livestock farming will be applied.
There will be a large base for payment, but the amount of the subsidy per month is no bigger than around 330 million UAH – the 4 billion UAH envisaged in the budget are divided into 12 equal parts. De facto, the order gives an opportunity to return agricultural VAT in the second half of the year at a rate not bigger than the specified limit per month.
That is, there may be a situation where VAT paid on preferential activities makes up 1,000 UAH for a farmer. The farmer expects that this amount will return to him in the form of a subsidy, but taking into account the corresponding coefficient and the specified limit, the farmer will receive only 200-300 UAH.
Now it is impossible to get even this money! The VAT declaration for February is to be submitted by March 20, and the Ministry of Finance and the State Fiscal Service have not yet adopted two by-laws.
- The order of maintenance and the form of the register of the recipients of the agricultural budget subsidy (under development).
- The order of information exchange between the State Fiscal Service and the Treasury.
In their absence, agrarians who will have filed their declaration and the special annex by March 20, 2017 risk ending up with no subvention for February, because the State Fiscal Service has no register in which producers should be included, and no order of submitting information to the Treasury for the latter to make the payments.
In order for agrarians to receive VAT in the form of subventions at least for February, the Ministry of Finance, the State Fiscal Service and all involved government agencies should urgently adopt these two documents and initiate changes in the subvention distribution procedure in order to stop saving on producers in an artificial way.
Let’s make sure we don’t end up as usually – we wanted the best, you know the rest. Let me remind you – the agrarian sector secures a third of our currency earnings and 12% of GDP.