UKRAINIAN AGRICULTURE: TAX POLICY AND EXPORT VAT ADMINISTRATION SERGEY FEOFILOV AUGUST 2016 – Kiev

A Buyer/Exporter is entitled to a VAT credit/refund only if a Seller/Supplier (and to certain extent the Seller’s suppliers) has deposited the relevant amount in its VAT account opened with the State Treasury Technically, this is achieved by blocking the money deposited by a Seller/Supplier (according to proper invoices registered in the Unified Registrar of Tax Invoices) on Seller’s VAT account (which is the basis for the Buyer’s VAT credit) once the aggregate Sellers’s VAT on the account exceeds the total of the Seller’s input VAT and the funds in the Seller’s VAT account. The State Treasury this way accumulates in VAT accounts the VAT due to be refunded

STATE TREASURY VAT account AVAT account B Company A Company B Company C Unified Register of Tax Invoices Deposit Sale VAT export Registration

JanuaryFebruaryMarchAprilMayJune July Amount of Export VAT refund by month, 2016, UAH B Source: State Treasury of Ukraine

MAJOR CHALLENGES EXPORTER ARE FACING IN VAT REFUND AREA Full and timely VAT refund is not available Poor transparency of VAT refund Procedures Voluntary changes of VAT refund Procedures

Poor VAT refund leads to Grain market is turned into two sub markets: -Cash payment -Payment by bank transfer Exporters with no VAT refund have to set domestic grain prices with discount. So they are less competitive in grain origination Two level pricing: - for grain producers prices are higher as risks are less - middlemen prices are less

TRADERS ULTIMATE GOAL: not to make contracts with a grain supplier who may not provide/register proper VAT invoice How to hit this goal: Buy grains only from grain producer or only from the first middleman To develop strong security service to check a supplier. To know his history, to rely only on cross checked suppliers Monitor a supplier planted areas, crop structure, availability of grains in elevators to escape from buying commodities from grey market Copy any documents (way bills, receipts, contracts, passport of a supplier officer etc.) to collect them into special file each file per supplier

Position of the State Fiscal Administration “Gray” market now delivers bulk of risks to the exporters. Export VAT is usually refunded by end of a month. Starting from August 2016 the VAT will be refunded 2 times per month Grain exporters should receive VAT refund 3 months after they provided the VAT refund declaration All exporters who have provided VAT declaration should receive the refund in due time

Agrarian Business: HOW TO TACKLE THE CURRENT PROBLEMS Introduction of a single public register for VAT refund application. To open existing electronic data basis of the State Fiscal Administration Undisputable recognizing of tax credit against duly registered tax invoice/declaration to increase the SFA responsibility Predictability of tax policy with regard to tax regime Timely notification on changes to the procedures of export VAT refund (not later than 6 months before the changes come into force)

Agrarian Business: HOW TO TACKLE THE CURRENT PROBLEMS To Improve transparence of the VAT refund administration Availability of two Government Registers State Fiscal Administration Registrar  Exporters claiming for VAT refund available  Amounts of VAT to be refunded available  Actually refunded VAT not available State Treasury Register  Detailed info about VAT refunded by exporter not available

Agrarian Business: HOW TO TACKLE THE CURRENT PROBLEMS To change rules of taking cash money from the bank system of Ukraine Stated aim of the State Register data base of the State Fiscal Administration was to identify non reliable suppliers. The Administration fails to meet this aim making each exporters create rather costly security service

Agrarian Business: HOW TO TACKLE THE CURRENT PROBLEMS Key point is predictability of export VAT refund by time and by size to allow exporters generating working capital and liquidity

Position of agrarian business Any proposals to the Tax Code shall be agreed between key stakeholders of the reforms (proper Committees of Ukrainian Parliament, Ministry of Agrarian Policy and Food, business and farmers) to make sure supposed amendments to the Tax Code od Ukraine will be efficient All proposals to changes in the Tax Code in 2017 must be collected, summarized and approved not later than September 2016

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