Business is concerned about the potential loss of the kaolin market in Ukraine

22/ 10/ 2024

The adopted draft law on taxation amendments No. 11416d includes provisions for establishing a minimum tax base for paying the rent for kaolin extraction, set at no less than $300. As noted by member companies of the European Business Association’s Subsoil Use Committee, the average market prices for raw kaolin in Ukraine are approximately $8-15 per tonne, meaning the adopted rent rate exceeds this by 30 times. According to industry experts, the proposed tax base also does not align with market prices for enriched kaolin ($100-150), based on international kaolin market reports. Raising the tax base for kaolin to a level more than 30 times higher than the actual sales prices will have serious negative consequences for mining companies. Under these conditions, businesses will be unable to cover their operating costs and will lose competitiveness in international markets. It is also important to note that the Ukrainian kaolin market faces significant challenges during martial law. A large portion of deposits has become inaccessible due to occupation or proximity to conflict zones. As a result, kaolin production may not only become unprofitable but could also lead to the closure of operations, including those that had planned investments. 90% of companies in the sector surveyed by the Committee reported they would halt production after the law comes into effect and existing contracts are fulfilled. On October 14-16, at the initiative of the ЕВА’s Subsoil Use Committee, sector participants met with Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Tax, and Customs Policy, Alina Soldusova, the Committees Chief Consultant, and representatives from Ukraine’s State Tax Service—Oleksandr Shumskyi and Vitalii Myronenko—to discuss these changes. The ЕВА has submitted its proposals and concerns both informally and through official channels. We sincerely hope that the business community’s position will be considered when preparing amendments to the adopted law, and that the unjustified tax base will be reduced.

The adopted draft law on taxation amendments No. 11416d includes provisions for establishing a minimum tax base for paying the rent for kaolin extraction, set at no less than $300.

As noted by member companies of the European Business Association’s Subsoil Use Committee, the average market prices for raw kaolin in Ukraine are approximately $8-15 per tonne, meaning the adopted rent rate exceeds this by 30 times. According to industry experts, the proposed tax base also does not align with market prices for enriched kaolin ($100-150), based on international kaolin market reports.

Raising the tax base for kaolin to a level more than 30 times higher than the actual sales prices will have serious negative consequences for mining companies. Under these conditions, businesses will be unable to cover their operating costs and will lose competitiveness in international markets.

It is also important to note that the Ukrainian kaolin market faces significant challenges during martial law. A large portion of deposits has become inaccessible due to occupation or proximity to conflict zones. As a result, kaolin production may not only become unprofitable but could also lead to the closure of operations, including those that had planned investments. 90% of companies in the sector surveyed by the Committee reported they would halt production after the law comes into effect and existing contracts are fulfilled.

On October 14-16, at the initiative of the ЕВА’s Subsoil Use Committee, sector participants met with Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Tax, and Customs Policy, Alina Soldusova, the Committee’s Chief Consultant, and representatives from Ukraine’s State Tax Service—Oleksandr Shumskyi and Vitalii Myronenko—to discuss these changes.

The ЕВА has submitted its proposals and concerns both informally and through official channels. We sincerely hope that the business community’s position will be considered when preparing amendments to the adopted law, and that the unjustified tax base will be reduced.