On 30 April 2015, the second Industrial Platform of the dedicated team for tax reform of The National Council of Reforms was held, consisting of representatives of the agrarian sector, professional associations and experts in agriculture. It was supported by the tax group of the Ministry of Agrarian Policy, which is in charge of the development of a Unified Complex Strategy for the Development of Agriculture and rural areas for 2015-2020.
“The aim of the Industrial platforms is to collect detailed information regarding problems in the tax field that hinder the development of business. This gives an opportunity to correct these mistakes while developing further tax reform.” -Olena Makeyeva, Deputy Minister of Finance during the meeting, discussions took place on the most pressing problems concerning taxation in the agricultural sector and which problems in particular hinder its development the most.
Market actors underlined that the aggregate tax burden on one hectare as being too high for agrarian producers who are law-abiding tax payers compared to the so-called “individual farmers” – individuals who, a majority of whom, are inhibiting production activity or providing land for rent illegally. As a result, their taxation contribution is solely through land-value tax and not through Single Social Contribution, Income Tax on Natural Persons and other taxes. As such, they have a budget burden approximately 10 times less than others operating in the same market.
A majority of the speakers at the Industrial platform, representing the agricultural sector, said it is extremely important to implement a minimum tax rate on one hectare and to cancel the state registration of the rental agreements. In their opinion, the liberalization of the regulations and the growth of the tax base will lead to a minimization of the shadow economy, and tax revenue growth which will enable a reduction of the high tax burden on the Salary Fund. On a different note, the representatives noted the problem and effect of the shadow economy in relation to the gathering of wild fruits, nuts, mushrooms and berries. According to the estimation of the market, a conservative estimate of budget losses from non-payment Income Tax for nuts alone is a minimum of ₴100 million.
As a solution, agrarian associations propose to change payment of Income Tax from product realization and rental fees that are paid by the purchasers, choosing instead the quantity of money as the basis for taxation, and paid for by natural persons. According to representatives of the industry, a lack of tax expertise at the agricultural production level especially among small farmers, makes it more difficult to use common VAT and income tax systems. In light of this, representatives proposed to provide a simplification of requirements for accounting and reporting for small businesses in order to prevent negative consequences in the case where agrarian businesses will be switched to a common system of taxation.The representatives of the agricultural sector underlined the necessity of cooperation development. In the European Union, approximately 50% of agricultural goods are produced by cooperatives, uniting agricultural producers. In Ukraine this figure does not exceed 1%. The participants noted that this was due to the prohibition for legal persons to become a member of such cooperatives, carrying goods by the service cooperatives, and the lack of the definition of patronage dividends in the Tax Code.
The majority of participants agreed that current legislation must take into account the possibility of the voluntary transfer of market players to the common system of VAT taxation and obtaining simultaneously the right to reimburse this when exporting by the producer or by the first intermediary. The problem of a delayed VAT refund must also be tackled. The complicated nature of these measures will enable the collection of statistical data about the enterprises which refused to use the special VAT regime. It will also inform the conclusion about the readiness of different subsectors of the agricultural sector to work on the principles of common taxation."We are very grateful to all the companies for their wish to be a part of the discussion on tax legislation, and make their own contribution to develop an optimal model of tax reform in the future. The dedicated team for tax reform of the National Council of Reforms will take into account all comments of the representatives of the agrarian sector,” stated Deputy Minister of Finance Olena Makeyeva. She underlined that all other sectors are encouraged to join the discussion of the current problems during the Industrial platforms which will be devoted to discussions of their sector specific problems.