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The list of agricultural products subject to VAT reductions should be revised

22/ 09/ 2020

Last week, the Verkhovna Rada passed in the first reading the draft law №3656 which provides for a reduction of the value-added tax rate to 14% for some types of agricultural products.

The EBA experts fully support this decision in the context of cereals and oilseeds but believe that this draft law should not include milk.

The fact is that when reducing the VAT rate on transactions for the sale of cereals and oilseeds, the amount of compensation from the budget to exporters of such grains and products of their processing is proportionally reduced. That is, budget spending and the risk of losses related to VAT fraud and unfair tax minimization practices are reduced. Thus, lowering the VAT rate on cereals and oilseeds will contribute to the de-shadowing of agricultural production.

At the same time, the representatives of the EBA Dairy Committee noted that in the dairy industry there is no practice of minimizing tax liabilities, and therefore there is no need to resolve it for dairy companies. Instead, dairy experts see the risks of rising prices for finished dairy products if milk is not removed from the draft law. Thus, the Committee members predict the opposite effect of lowering the VAT rate, as a result of which the price of raw milk from suppliers may increase, so the dairy companies will be forced to increase the cost of dairy products for the final consumer.

Svitlana Mykhailovska EBA Deputy Director for Advocacy
We are grateful to People Deputies for working out solutions that will reduce shadow schemes in the agricultural sector. At the same time, we call for the revision of the list of products included in this document to ensure its completeness and appropriateness. Particularly, we expect that the proposal of the dairy business to exclude milk from this list will be considered.

Therefore, the EBA expresses its support for the provisions of the draft law regarding the reduction of the VAT rate for sales of cereals and oilseeds. At the same time, we request to exclude whole milk from the list of goods covered by this draft law during its preparation for the second reading.

 

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