The provisions of the draft bill 5600, which lead to a significant increase of the tax burden on legal agricultural producers, have caused a great resonance in the agricultural sector. After the adoption of the draft bill in the first reading (July 1, 2021), experts of the analytical center “Smart Country” worked with People’s Deputies for two weeks to develop and submit amendments to the second reading, which correct some discriminatory provisions of the draft bill and contain large corruption risks.

In particular, the UAC held numerous consultations with People’s Deputies such as Mykola Solskyi, Oleh Tarasov, Maryna Nikitina, Pavlo Khalimon, Oleksandr Saliichuk, Volodymyr Tymofiichuk, Dmytro Kostiuk, Artem Chornomorov, Oleksandr Haida, Oleksii Ustenko, Serhii Labaziuk, Ihor Molotko, Ivan Tchaikivskyi.

People's Deputies partially or completely amended the draft law developed by the UAC. We thank them for their work and support of agricultural producers!

The main proposals of the UAC:

Changes in the minimal tax liability (MTL)

1. One of the most discussed issues was the norm on the introduction of the minimum tax liability (MTL) per 1 hectare. However, in the draft bill 5600 MTL calculation format is spelled out in a way that increases the tax burden on legal workers, but does not equal it between shadow workers and those work within the law.

The draft bill 5600 proposes to set the MTL at the level of 5% of the normative-monetary valuation of land (NMV), which in Ukraine exceeds the average amount of taxes paid by legal agricultural producers (up to 4.5% of NMVs).

The very idea of MTL ​​introduction is to set the minimum level of tax burden that will be paid by honest taxpayers. According to the State Tax Service, the average level of tax burden of legally operating enterprises excluding VAT and united social tax (UST) is UAH 1,246 (it is 4.5% of NMV). At the same time, in certain cases of low yield land with high NMV, the tax burden of honest taxpayers is 3% of NMV, because, unfortunately, the size of NMV does not reflect the real soils’ fertility.

Accordingly, the MTL cannot be set above or at the level of the average tax burden. That is why the UAC proposes to set the MTL at the level up to 3.5% of NMV.

2. The problem is the outdated method of NMV of land calculating, from which MTL is calculated. In some regions, NMV is unreasonably high, that is why agricultural producers will overpay MTL. In particular, this applies to the southern regions of Ukraine, there is one of the highest land prices (at the level of UAH 31,000 per hectare), despite of the fact that the region has suffered from drought for two years in a row and there was no crops. Thus, the NMV does not correspond to the real soil fertility.

The UAC’s proposal - to set the maximum amount for NMV of land for the calculation of MTL at the level of UAH 28,000, which is the average value of NMVs in Ukraine. This restriction will apply until the entry into force of the new Methodology of NMV of land, which will take into account the current degree of soil moisture in contrast to the current methodology.

3. Another negative point – there is MTL, which is calculated separately for each company, which will also lead to overpayment of tax by legal agricultural producers. After all, it is common practice for staff to be registered to the parent company, while in subsidiary company they are "absent". This will lead to surcharges of the minimum tax on subsidiary companies, although the total amount of taxes paid will exceed MTL.

The UAC’s proposal – at will of taxpayer, he can calculate the minimum tax liability for a group of related legal entities as a whole, but not for each company separately.

4. The draft bill 5600 leaves loopholes for manipulation on MTL payment from state and communal land. The document establishes that the entire amount of rent for state and communal lands is included in the MTL. At the same time, private land tenants will include only 19.5% of the lease value to MTL - taxes paid on rent. There is a possible manipulation, when the tenants of state and communal land will cover the MTL from private lands by crediting the rent.

The UAC’s proposal - to establish when calculating the amount of paid taxes, for comparison with the MTL, only the amount of paid land tax is included in the amount of paid taxes, but not the rent for the land. In addition - to reduce the MTL by 50% for all agricultural lands, that do not belong to individuals: leased from juridical persons, as well as the state and communities, or belong to a legal entity.

5. The draft law proposes to establish that single tax payers will pay extra charge from the MTL in the form of a single tax, which is sent to the local budget completely. At the same time, income taxpayers will pay additional income tax, while only 90% is sent to the state budget.

The UAC's proposal - to establish that income taxpayers will pay additional tax in the form of land tax, which is fully sent to the local budget, as well as a single tax of the fourth group.

6. The draft law 5600 exempts natural persons who own up to 0.5 ha of agricultural land from payment of MTL. But the norm is written in such a way: if an individual has a total ammount of 0.51 hectares in use, he is already obliged to calculate the MTL for the entire area of the land plot, but not for 0.01 ha.

The UAC’s proposal - to reduce the minimum wage for all individuals by 0.5 ha.

Changes in the administration of taxes and fees

1. The draft bill 5600 virtually eliminates automatic VAT refunds. The draft bill limits VAT refunds for producers/processors whose outgoings cost less than 8% of the selling price. At the same time, it is not clear whether the same farmer can be considered as a processor, who may incur VAT before amends for the sale of products exclusively within the country (due to VAT rate reduction of 14% on agricultural products). The norm makes a corruption scheme and leads to VAT refunds delays. As a result, the tax service decide who falls under the refund criteria and who does not.

The UAC’s proposal is to exclude this norm from the draft law.

2. The State Tax Service is given very wide powers, which can lead to corruption. For example, if a taxpayer appeals against accrued liabilities, including in the appellate body of the State Tax Service, the tax authority has the right to take as a tax pledge (without a court decision) a taxpayer’s movable and fixed asset (including manufactured products, such as milk). Corruption norm, which in case of abuse will provide an opportunity to stop economic activity and actually destroy the enterprise without confirmation by the court the fact of tax violation.

The UAC’s proposal is to allow the State Tax Service to take the property as a tax pledge only after a court decision. Moreover, only fixed estate and development tools can be taken as a tax pledge, but not products of an agricultural enterprise, due to which its activity can be stopped completely.

3. The UAC also proposes to exclude the amendment, which expands the powers of the State Tax Service to send requests to taxpayers. Currently, the basis for writing such a request is the facts that indicate an offense. In the statutory wording of draft bill 5600 it is proposed to replace the word "testify" with "may testify". This wording makes it possible to send requests to agribusinesses for any reason. Absent answers to the request are the basis for the inspection. In fact, it is possible for the State Tax Service to increase the number of inspections of business entities.

4. The draft bill 5600 empowers local governments without any evidence, by a majority vote of local deputies to determine a person guilty of self-seizure of a land plot, on the basis of which the tax authorities are obliged to charge such a person land tax. This approach is clearly corrupt and violates the rights of citizens - no one can be prosecuted without providing evidence.

The UAC’s proposal is to exclude this norm from the draft bill.

The UAC calls on the parliament to support these proposals so that the taxation of the agricultural sector is transparent and open and helps to equalize the tax burden between legal farmers and those who work illegally, rather than increase it for conscientious taxpayers.