EBA warns on introduction of new procedure for fuel and ethanol administration

25/ 03/ 2019

Starting from July 1, 2019, a new Procedure of electronic fuel consumption management for all consumers of fuel will be introduced in accordance with the changes to the Tax Code (Law № 2628). The principle will apply to all legal entities who hold fuel in containers of more than 200 cubic meters and individuals, tax payers of the 4th group, who store fuel in volumes over 1000 cubic meters as well as individuals, tax payers of the 4th group, who receive fuel totaling over 10,000 cubic meters during the calendar year. These entities must be registered as excise tax payers, obtain licenses, keep daily records and submit electronic reports to the State Tax Service about daily fuel balances and amounts of sold (used) fuel. Today, many companies are not even aware of the situation that from the 1 July 2019 they will become payers of excise tax. These companies are socially important economic entities such as airports, representatives of the energy and metallurgical industries, and national companies specializing in transportation, including railways, etc. This situation is worrying the entire business community. On March 22 at a meeting in the European Business Association, representatives of major socially important companies voiced technical and financial problems for introducing the new fuel administration order. After all, it requires new equipment - measuring devices for storage tanks. Their cost can be hundreds of thousands of dollars. For many companies, the conversion of production capacity requires a stoppage of production processes. However, additional investments weren’t foreseen in the financial plans for 2019 and haven’t been taken into account in the approved tariffs for services, including utility tariffs. Business representatives of all spheres will bear significant expenses, because they need to purchase such equipment and to change fuel accounting. In addition, it will be necessary to hire additional staff to maintain such records, which is also an additional financial cost for companies. All the participants of the discussion noted that as a result of the introduction of the new administration system, additional obligations on excise taxes from companies will not arise, and therefore the State Budget will not receive additional revenues, however, it will significantly depress profit taxes from major budget-supporting enterprises. The introduced mechanism creates more stringent requirements for accounting and storage of fuel for companies that already have an enhanced monitoring system and are aimed at detecting smuggling flows. However, experts of the Association do not share the confidence that this mechanism will help to detect smuggling flows and schemes for the sale of counterfeit products, which, unfortunately, exist today. In the near future, the European Business Association will prepare an appeal to the Oil and Gas Association of Ukraine (as initiator and developer of this Law), the Ministry of Finance of Ukraine, the Ministry of Energy and Coal Industry of Ukraine and the Verkhovna Rada on the need to postpone the introduction of the new Procedure to 2021. It is important to provide time to reorganize enterprises in a proper way and to make qualitative changes, directly to the Law, involving as wide a range of participants in the discussion as possible.

Starting from July 1, 2019, a new Procedure of electronic fuel consumption management for all consumers of fuel will be introduced in accordance with the changes to the Tax Code (Law № 2628). The principle will apply to all legal entities who hold fuel in containers of more than 200 cubic meters and individuals, tax payers of the 4th group, who store fuel in volumes over 1000 cubic meters as well as individuals, tax payers of the 4th group, who receive fuel totaling over 10,000 cubic meters during the calendar year. These entities must be registered as excise tax payers, obtain licenses, keep daily records and submit electronic reports to the State Tax Service about daily fuel balances and amounts of sold (used) fuel.

Today, many companies are not even aware of the situation that from the 1 July 2019 they will become payers of excise tax. These companies are socially important economic entities such as airports, representatives of the energy and metallurgical industries, and national companies specializing in transportation, including railways, etc.

This situation is worrying the entire business community. On March 22 at a meeting in the European Business Association, representatives of major socially important companies voiced technical and financial problems for introducing the new fuel administration order. After all, it requires new equipment – measuring devices for storage tanks. Their cost can be hundreds of thousands of dollars. For many companies, the conversion of production capacity requires a stoppage of production processes. However, additional investments weren’t foreseen in the financial plans for 2019 and haven’t been taken into account in the approved tariffs for services, including utility tariffs.

Business representatives of all spheres will bear significant expenses, because they need to purchase such equipment and to change fuel accounting. In addition, it will be necessary to hire additional staff to maintain such records, which is also an additional financial cost for companies.

All the participants of the discussion noted that as a result of the introduction of the new administration system, additional obligations on excise taxes from companies will not arise, and therefore the State Budget will not receive additional revenues, however, it will significantly depress profit taxes from major budget-supporting enterprises.

The introduced mechanism creates more stringent requirements for accounting and storage of fuel for companies that already have an enhanced monitoring system and are aimed at detecting smuggling flows. However, experts of the Association do not share the confidence that this mechanism will help to detect smuggling flows and schemes for the sale of counterfeit products, which, unfortunately, exist today.

In the near future, the European Business Association will prepare an appeal to the Oil and Gas Association of Ukraine (as initiator and developer of this Law), the Ministry of Finance of Ukraine, the Ministry of Energy and Coal Industry of Ukraine and the Verkhovna Rada on the need to postpone the introduction of the new Procedure to 2021. It is important to provide time to reorganize enterprises in a proper way and to make qualitative changes, directly to the Law, involving as wide a range of participants in the discussion as possible.