Ukraine should not hike taxes for farmers in 2015-2016, tax official says

The State Fiscal Service of Ukraine doesn’t intend to cancel tax privileges for farming companies in 2015, its head Ihor Bilous declared in a speech at an Oct. 28 investment conference. The Fiscal Service and farming executives agreed that a special regime in VAT taxation as well as a fixed agricultural tax, instead of a profit tax, will work for agricultural producers at least in 2015 and 2016, according to Bilous. He believes that farming companies should be eventually shifted to a standard taxation regime, but the timing of such a shift is still a subject for discussion. It might occur in 2017 or 2018, he said.

Earlier this year, Ukrainian Prime Minister Arseniy Yatsenuyk hinted that the government might cancel or reduce some tax privileges for agricultural producers, referring to the recommendations of the IMF, which listed an increase in taxation of the farming sector as one of the options to improve the budget deficit.

The draft coalition agreement made public this morning by the Poroshenko Bloc offers few details on the agricultural taxation plans. The only initiative mentioned is to introduce a unified tax for agri producers (active currently for small and medium enterprises), instead of a fixed agricultural tax. The initiative does not indicate whether the taxation of farming companies will change. But such an initiative raises the chance that the farming companies will not pay income tax (and pay some smaller fixed tax) in the long term, meaning they will be not shifted to a standard taxation regime, as Bilous suggested.

Alexander Paraschiy: The announcement is encouraging for the Ukrainian agriculture and food-processing sector, including its top representatives such as MHP (MHPC LI), Avangardco (AVGR LI), Kernel (KER PW) and Astarta (AST PW).

The expressed intention of the State Fiscal Service does not guarantee that tougher taxation won’t be introduced, given that there will be unavoidable changes in the government in the coming weeks, which might lead to policy revisions. At the same time, changes in the Fiscal Service leadership, which supports preserving the tax privileges, look less likely in the near term. Therefore, we can expect that the new government will support postponing a harsher taxation policy for farmers.