Yesterday, on 30 January, a working group meeting initiated by the Parliamentary Committee on Finance, Taxation and Customs Policy was held with the participation of representatives of relevant ministries, MPs, the State Tax Service of Ukraine and farmers. During the discussion, proposals were presented to introduce a reduced excise tax rate on diesel fuel for farmers after the end of the war.

Oleksandr Kovalchuk, Deputy Chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, reminded that on 1 September 2024, Law of Ukraine No. 3878-IX came into force, which obliged the Cabinet of Ministers of Ukraine to develop and submit to the Verkhovna Rada of Ukraine a draft law on a preferential excise tax rate on diesel fuel for agricultural machinery used in field work. This law provided the government with 90 days to develop a mechanism for a reduced rate of 0.5 per cent of the standard excise tax.

Accordingly, on 10 September 2024, the Cabinet of Ministers of Ukraine issued Order No. 28359/1/1-24, which obliged the Ministry of Finance of Ukraine, the Ministry of Agrarian Policy and Food of Ukraine, the Ministry of Economy of Ukraine, the Ministry of Digital Transformation of Ukraine, the Ministry of Justice of Ukraine, the State Tax Service of Ukraine and the State Customs Service of Ukraine to develop a relevant draft law by 11 November 2024. However, this order has not yet been fulfilled.

“When adopting the draft law, MPs included a provision for an excise rate of 0.5 per cent of the standard tax for diesel fuel used by farmers. However, the Ministry of Finance of Ukraine and the State Tax Service of Ukraine asked not to include this provision in the final text, arguing that there was no mechanism for administration. Instead, they pledged to develop a separate draft law within three months. The MPs agreed to this, but the Ministry of Finance has not yet fulfilled this promise. That is why our committee decided to develop the concept on its own and has presented it to the relevant departments today” said Oleksandr Kovalchuk.

During the discussion, the farmers stressed that the delay in adopting the mechanism puts them at a disadvantage compared to their European counterparts. According to the law, the excise tax on fuel in Ukraine will gradually increase from 139 to 330 EUR per 1,000 litres by the end of 2028, while in the EU, including neighbor countries, this tax for farmers is already less than 70 EUR.

Taras Vysotskyi, First Deputy Minister of Agrarian Policy and Food of Ukraine, noted that farmers agreed to pay higher excise taxes during martial law to support the country's defense capability, but after it ends, they expected to return to the promised benefits:

“After the end of the war, a reduced excise duty similar to the rates in European countries should be introduced. The Ministry of Agrarian Policy and Food of Ukraine supports this initiative and will be an active participant in developing a mechanism to prevent any abuse” Taras Vysotskyi said.

Svitlana Vorobei, a representative of the Ministry of Finance of Ukraine, explained that the Ministry had initially opposed the introduction of the reduced excise duty due to difficulties with administration.

However, to avoid the risk of fraud, the working group proposed using a system of bills, a mechanism already used for aviation fuel, alcohol for perfumery and diesel fuel for the military.

There are two key safeguards:

• Preferential fuel will be sold exclusively directly to producers or importers for farmers.
• There will be a limit of 60 litres per hectare of officially cultivated land for which taxes are paid.

The farmers emphasize that they are interested in the transparency of the mechanism to avoid possible abuses and the risk of further cancellation of benefits.

«The Ukrainian Agri Council is interested in ensuring that this mechanism has reliable safeguards against abuse. We understand that if such abuses occur, it puts the entire system of applying the reduced rate for farmers at risk. That is why farmers who work legally want the system to operate transparently, legally and without abuse» said Mykhailo Sokolov, Deputy Chairman of the UAC.

Following the meeting, it was decided that in the near future MPs, together with agrarian associations, will develop the text of the draft law and submit it to the Ministry of Agrarian Policy and Food of Ukraine, the Ministry of Finance of Ukraine and other relevant agencies.