Ukraine MinFin proposes farmers shift to general tax regime

The Ukrainian Finance Ministry’s proposal to reform the Tax Code, published on Dec. 1, suggests certain changes to the taxation systems of farming companies as of 2016. Firstly, farmers will have to pay corporate income taxes at a rate of 20% compared to a tiny fixed agriculture tax currently. Secondly, farmers will be switched to the general system of VAT payments and thus won’t receive any more VAT subsidies. Thirdly, farmers and traders will also receive VAT redemptions on agri exports.

Roman Topolyuk: The implications of the different parts of the proposed changes will vary. The introduction of general corporate income taxes at a rate of 20% will for sure have negative effects on bottom lines. Abolishing the VAT subsidy will also have a negative impact on farmers, though it will be somewhat neutralized by the reintroduction of export VAT redemption, contrary to the current regime. Kernel (KER PW), for example, claims that such legislative changes in the VAT regime will have a positive impact on its farming segment’s EBITDA, as inflows from possible future VAT redemptions will outweigh the negative impact of the abolished VAT subsidy.

The most negatively exposed to the proposed VAT regime changes will be agriculture producers focusing on Ukraine’s domestic market, like MHP or Astarta, though for some reason the contribution of the VAT subsidy to their EBITDA declined recently. In 9M15, the VAT subsidy accounted for 12.3% of MHP’s EBITDA and 5.9% of Astarta’s, compared to 14.9% and 14.7% a year ago, respectively.