AIC non-governmental organizations applied to Taras Kutovyi, the Minister of Agrarian Policy and Food of Ukraine, with a request to amend the Procedure for distribution of budget subsidies aimed at developing agricultural commodity producers and promoting agricultural production in 2017.
The relevant letter was signed by All-Ukrainian Agrarian Council, Agrarian Union of Ukraine, Ukrainian Agrarian Confederation, Ukrainian Agribusiness Club, Union of Poultry Farmers of Ukraine, Association of Pig Producers of Ukraine and Association of Milk Producers of Ukraine.
According to the signatories, the Resolution of the Cabinet of Ministers contains a number of problems and contradictions in terms of regulations of the applicable legislation violating rights and legitimate interests of agricultural producers. Most objections of agricultural commodity producers were caused by the provisions stipulating that the calculation of budget subsidies shall performed in proportion to VAT amounts paid by the agricultural producers on all activities of agricultural commodity production. This leads to the situation that the agricultural producers engaged in subsidized activities along with the production of crop outputs, such producers constitute a majority, will be actually deprived of the opportunity to receive a grant in winter and spring of 2017.
‘One of the key features of the crop production activities is its seasonal nature involving the time gap between resources investment and income acquisition from the sale of crop products. In the first half of the year the volume of crop products supply is extremely low, but at the same time there is a necessity for purchasing seeds, fuel and lubricants, fertilizers, machinery maintenance services. Consequently, agricultural producers will get a tax credit, but no tax liabilities will arise due to the absence of supplies for an extended period of crop products grown by means of the purchased goods/basic assets’, stated in the letter
The vast majority of agricultural commodity producers simultaneously carry out activities both in the field of livestock production and crop production. It means that the commitments received from the sale of livestock production in the first half of the year will be reduced in respect to ‘crop’ tax credit including the purchase of seeds, fuel and lubricants, plant protection agents, etc. used in crop production. Therefore, the respective agricultural commodity producer according to the approved Procedure for distribution of budget subsidies will be deprived of the right to receive the budget grant since the volume of commitments gained from the livestock production in most cases will be less than the aggregate tax credit received during the production of agricultural commodities.
As part of a special VAT regime such problem has not arisen since the agricultural commodity producer transferred to the special account the whole difference between aggregate tax credit and tax liabilities for all activities related to agricultural products regardless of time of their origin - limits on the amounts paid within special regime for the accounting period (month) did not exist. Instead, under the current model a monthly limit for payout of subsidies is set. As a result, agricultural producers engaged in both crop and livestock production in the first half of the year will not receive a subsidy in principle, and in the second half of the year, when the amounts of paid VAT are sharply increased, will receive only a small share of repayment due to the limit on the amount of subsidy to be paid every month.
This situation, according to the opinion of professional associations, can lead to the tough financial situation for small and medium-sized farms which most often do not have their own elevator capacities and experience an acute shortage of circulating assets forcing them to sell the harvest immediately after gathering, while large enterprises have a possibility to sell the relevant products throughout the year, thus smoothing the peaks of VAT payout as well as being able to receive a subsidy pursuant to the approved Procedure within the whole year.
The letter also states that criticized regulations of the Procedure contradict provisions of the current legislation. In compliance with the requirements of paragraph 51 of the Transitional Provisions of the Tax Code of Ukraine from January 1, 2017 to January 1, 2022 taxpayers - agricultural producers entered in the Register of recipients of budgetary subsidies under the Law of Ukraine ‘On State Support of Agriculture of Ukraine’, in the manner and terms established by this Code, shall submit a value added tax declaration with the appendix indicating calculation of tax liabilities of the positive difference between the sum of tax liabilities for the reporting (tax) period and the sum of tax credit for the reporting (tax) period out of this tax according to the results of activities for transactions specified in Article 16 of the Law of Ukraine ‘On State Support of Agriculture of Ukraine’ within the reporting (tax) period as well as the calculation of the proportion of the cost of agricultural goods delivered during the previous 12 consecutive accounting tax periods (months). Thus, the basis for calculating amount of subsidy envisages not the amount of VAT paid on all activities but the difference between tax liabilities and tax credit by subsidized activities. Therefore, the relation of calculation of budget subsidies amount to the paid VAT amount is groundless, restricts the rights of agricultural producers and contradicts the above-mentioned regulations of legislation.
Professional associations called the Minister of Agrarian Policy and Food to initiate urgently elaboration of the draft resolution of the Cabinet of Ministers of Ukraine on amendments to the Procedure involving in its development the representatives of leading non- organizations of farmers.