The UAC gave amendments to the second reading of the draft bill 5600 "On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine to Ensure Balanced Budget Revenues", which correct some discriminatory provisions of this document and carry high corruption risks.

"Most of the amendments made by the UAC were supported by both the Ministry of Finance and the leadership of the agrarian committee, parliament and its members. Therefore, we strongly hope that the draft bill with changes will be supported by the people's deputies during the second reading," said the UAC Deputy Chairman Mykhailo Sokolov.

The changes proposed by the UAC were partially or completely introduced by deputies Mykola Solskyi, Oleh Tarasov, Maryna Niktina, Pavlo Khalimon, Oleksandr Saliichuk, Volodymyr Tymofiichuk, Dmytro Kostiuk, Artem Chornomorov, Oleksandr Haidu, Oleksii Ustenko, Serhii Labaziuk, Ihor Molotok, Ivan Chaikivskyi.

Thank you for the support of agricultural producers!

The main proposals of the UAC:

Regarding the inclusion of income tax to the amount of paid taxes, in comparison with MTL (minimal tax liability). Enrollment to the amount of payed taxes, in comparison with MTL, only a part of the income tax, which arises as a result of the introduction of agricultural business. This approach requires the division of the company's financial result into related and unrelated to agricultural production, which required quite complex accounting.

Solution. It is proposed to provide an opportunity for agricultural producers on the basis of the general system of taxation to include in the amount of paid taxes, when calculating MTL, the entire amount of paid income tax.

Benefit from an income tax for individuals. The draft law proposed to exempt from personal income tax income of individuals from the sale of their own agricultural products, if the size of agricultural land (on which such products are grown) does not exceed 0.5 hectares (current standard is 2 hectares). However, this did not solve another problem - the inability to determine how many products were grown on these lands and how much should be added to MTL. This approach included high chances to evade additional payment.

Solution. The proposal on transition to the benefit in cash equivalent was accepted. Thus, the benefit for exemption from personal income tax from the sale of home-grown products will depend on the amount of received income and will be provided if the amount of income does not exceed 12 times of the minimum salary. That means, the benefit on received income from 2 hectares is replaced by a benefit that has a monetary expression of income 12 times of the minimum salary. This approach is an international practice that operates in many countries.

Benefit from MTL for individuals. The initial version of the draft bill provided that MTL is not calculated for land plots smaller than 0.5 ha. However, if a plot is 0.51 hectares, MTL is calculated for its entire area.

Solution. The proposal of the Chairman of the Agrarian Committee Mykola Solskyi to completely refuse the privilege for plots in the amount of 0.5 hectares was accepted. Instead, MTL will be calculated for all agricultural plots owned by individuals, which as of July 1, 2021 (date of adoption of the draft law 5600) were located within the settlements.

Regarding the inflated MTL rate. When calculating the amount of paid taxes, in comparison with MTL, the amount of taxes paid does not include UST (unified social tax) paid by a business entity. At the same time, the size of MTL remains at the level set in the draft law 3131-d - 5% of NME (nominative monetary evaluation), which was calculated taking into account UST.

Solution. The UAC proposed to reduce MTL from 5% (which are set in the current version of the draft bill) to 3.5%. As a compromise, the Committee proposed to establish a transition period - the first two years (2022 and 2023) after the introduction of the MTL, the rate will be 4% of NME, and after - 5% of NME (from 2025). This version is included in the recommended text of the draft law for the second reading.

Problems of calculation of MTL for land plots owned by artificial persons, state or communal ownership. Tenants of state and communal lands have the right to include to the amount of paid taxes in comparison with MTL the entire amount of rent for the respective land plots. At the same time, users of land plots that rent them from private juridical persons had no right to credit the rent at all.

Solution. The proposal is to set the basic coefficient (rate) of MTL at the level of 2% of NME for all agricultural lands that do not belong to individuals: leased from juridical persons, as well as from the state and communities, or belong to juridical person. At the same time, during the discussion another approach was worked out, which was included to the draft bill: for state and communal lands and lands leased from juridical persons, 20% of the rent is included in MTL. However, the issue of taxation of land (which was bought by a juridical person) is not resolved.

Problems of inflated NME. NME is a basis for calculation of MTL for all regions of Ukraine. At the same time, it is generally known that the outdated method for calculation of NME of land plots leads to the fact, that in regions with a low level of precipitation, NME of many land plots is overestimated and does not correspond to the real soil fertility.

Solution. The proposal is to establish that the NME of the land plot, for the calculation of MTL, cannot exceed UAH28,000 thousand (the estimated average of NME in the country). The restriction will run until the entry into force of the new NME methodology. At the same time, the draft law did not support this proposal, instead it is only proposed to establish at the legislative level requirements for the Cabinet of Ministers within 8 months to develop and approve a new methodology for NME calculating.

Regarding the definition of the territorial community, to the budget of which there is an additional payment from MTL by the payers of the single tax of the fourth group. This applies to companies that operate in several communities at the same time - it is unclear to which community’s budget and in what amount transfer of MTL funds should be made.

Solution. It is proposed to establish that an additional payment from MTL is distributed between the budgets of different territorial communities in proportion to the share of land plots (which are located in the respective territorial community) in the total area of ​​agricultural land, owner or user of which is a taxpayer, who pays an additional payment from MTL.

Changes in the administration of taxes and fees

The draft bill excludes the norm that gives an opportunity to 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 makes a corruption and violates the rights of citizens - no one can be prosecuted without providing any evidence.

Regarding personal income tax on transactions for the sale of commercial agricultural lands. According to the current norms of the document, the benefit on the application of the zero rate of personal income tax at the first sale during the year of agricultural land extends to land plots provided under free privatization. At the same time, such a benefit does not apply to agricultural land provided to citizens in the process of privatization of state and communal agricultural enterprises (distribution of commercial agricultural land).

Solution. It is proposed to tax personal income tax at a rate of 0% for the first sale during the year of land provided to citizens in the process of privatization of state and communal agricultural enterprises. The benefit also applies to citizens who have inherited the above-mentioned land plots.

Regarding taxation at a higher rate of personal income tax on real estate sales. Taxation at an increased rate of personal income tax (18%) of individuals’ income from the sale of third and subsequent real estate during the tax year (current rate is 5%). Such an initiative extends not only to housing and buildings, but also to land plots and will increase the tax burden on people who own three or more plots of land and decide to sell them within a year.

Solution. It is proposed to tax personal income tax at the rate of 18% only on the net income received by the taxpayer from the sale of real estate (the difference between the income and the amount of documented expenses of the taxpayer for the acquisition or creation of such a real estate).

The norm according to which the State Tax Service bodies have the right to take the taxpayer's movable and immovable property, in the case when such a taxpayer appeal additional tax liability (made by the STS) in administrative or judicial proceedings. In this case, the encumbrance of property is carried out by the State Tax Service independently without recourse to the court and in the amount that is equal to the amount of accrued tax liabilities, which are challenged.

Regarding the repayment of tax debt without a court decision. The draft law proposes to give the supervisory authorities the right to collect the tax debt that arose as a result of non-payment of the taxpayer's self-determined monetary obligation in the tax return or adjustment calculation, at the expense of cash and/or funds from such debtor's bank accounts by decision of the supervisory authority without going to court (ie abolition of the current requirement that such a debt must exceed UAH5 million and not be paid within 90 days).

Solution. It is proposed to keep the current requirement of the draft law that such a debt must be overdue for more than 90 days. At the same time, the requirement that such a debt should amount to more than UAH5 million is abolished. At the same time, such debt is subject to repayment only in the part of the excess of the taxpayer's tax debt over the state debt to such a payer.

Regarding the ban on travel abroad of the head of an enterprise that has a tax debt. Establish a temporary restriction (by court decision) on the right of the head of an enterprise (juridical person) which has a tax debt to go abroad until the full repayment of the tax debt, the amount of which exceeds UAH1 million.

Solution. To provide for the possibility (according to a court decision) to restrict the departure of the debtor abroad. However, such a restriction does not apply if there is a debt of the state to the payer, the amount of which is equal to or exceeds the amount of tax debt.

Regarding the expansion the State Tax Service's right to request information from taxpayers. The tax authorities have the right to ask for information (explanations) from the taxpayer not only on in the case of detected offense, but also in cases when the State Tax Service has revealed facts that may indicate a taxpayer’s violation of the laws’ requirements.

Solution. The proposal is to exclude this norm from the document. However, the Agrarian Committee proposed an alternative to this rule: if a taxpayer receives a request for information that has already been provided by the taxpayer on previous requests of the supervisory authority, such a taxpayer has the right to provide the supervisory authority with information about the date and letter number, by which the specified information was provided to such a controlling body.

Regarding the ban on carrying forward losses of previous years to reduce the amount of income tax. Return to the practice of restricting the right of taxpayers (so far only large ones) to carry forward losses of previous years (a similar rule has existed since 2010, but it was abolished). Only 50% of the previous years’ losses can be attributed to the reduction of income tax liabilities.

Solution: allow to include up to 50% of loses from previous periods each year, if their amount is not more than 10% of the financial result of the current year.

The UAC calls on the parliament to support these proposals as ones that lead to equalization of the tax burden between agricultural producers and help to bring all parts of the agricultural legal!