Representatives of the Ukrainian Agri Council, Pig Producers of Ukraine Association and the Association of Milk Producers held an online meeting with the Chairman and Member of Parliament of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, representatives of the State Tax Service and the Ministry of Finance of Ukraine.

During the meeting, they discussed the UAC's initiatives to change the taxation model for agricultural cooperatives, as well as the taxation of the free transfer of reclamation systems to WUOs. Special attention was paid to gaps in the current fuel storage licensing system.

VAT on the transfer of property from the state to the WUO

Following the adoption of the law on Water Users' Organizations in May last year, Ukraine is in the process of establishing them. So far, more than 20 WUCs have been established across the country.

The Law provides that state water management organizations to transfer state-owned land reclamation facilities to the established WUOs free of charge. However, according to the provisions of the Tax Code of Ukraine, when such a free transfer is made, state water management organizations are obliged to charge and pay VAT not lower than the book value. In fact, the state has to pay it to itself. At the same time, there are no funds for VAT in the budgets of such state water management organizations, which makes it impossible to implement irrigation reform and transfer state reclamation facilities to the WUO.

Representatives of the Parliament and the Government support the implementation of the irrigation reform. At the same time, the adoption of new tax exemptions to the Tax Code may contradict Ukraine's commitments to international partners to refrain from introducing new tax privileges.

Given that for the purposes of transferring property to the WUOs, the exemption is granted to state institutions, this will not lead to a decrease in budget revenues. Therefore, it was decided to hold additional consultations with international partners and unblock the WUO reform.

"The reform has been going on for 5 years. These amendments are necessary for its completion and normal functioning of the WUO. Large international corporations and organizations, in particular, USAID and the EBRD, are already allocating grants for the development of the WUO. After the aggressor's destruction of the Kakhovka HPS, for the restoration of which international organizations will also allocate money, we will be rightly asked what is being done in Ukraine to develop irrigation?" said Andrii Dykun, UAC Chairman.

Problems of licensing fuel storage by farmers

The issue of improving the procedure for storing fuel for self-consumption or industrial processing has long been a concern for farmers. The current system for regulating the circulation of fuel contains requirements that are impossible to be fulfilled in practice. This leads to significant problems for farmers and unreasonable penalties, as inspections of fuel turnover regulation have not been stopped and are still actively taking place:

The license must indicate the volume and location of all non-stationary containers with a capacity of more than 5 liters (canisters, small barrels, etc.) - a fine of UAH 500,000;

It is not always possible to determine the exact address of the location of the tanks (there is often no address in the field) - a fine of UAH 500,000;

In the off-season, farmers mix both winter and summer diesel fuel, which, according to the requirements of the Tax Code, is the production of fuel without a license - a fine of more than UAH 1,000,000;

Excessive level of penalties for storing fuel for own needs without a license (UAH 500,000 for the first violation) is not proportionate to the risk posed by such storage.

To improve the legislation on fuel storage by farmers, the UAC experts developed a draft law aimed at correcting the above technical gaps in the fuel circulation regulation system.

The participants of the meeting supported the proposed changes and agreed to finalize all technical aspects with the State Tax Service and the Ministry of Finance within 10 days, after which Member of Parliament will register the relevant draft law in the Verkhovna Rada.

Patronage dividends

The third issue discussed was the introduction of patronage dividends for members of agricultural cooperatives. The UAC proposes to adopt the draft law No. 4457-1, which introduces taxation of patronage dividends at the level of a member of an agricultural cooperative, not in the cooperative.

This eliminates double taxation of the income of cooperative members. Currently, the income is actually taxed simultaneously at the level of the cooperative and then at the level of its member - the agricultural producer who receives the dividends.

As a result of the proposed changes, small and medium-sized agricultural producers, by uniting in a cooperative, will receive the same benefits that their larger competitors currently enjoy, which, due to their size, can build their own processing, logistics and marketing.

Also, this approach allows cooperatives to perform the function of processing and selling their members' products (arm trade) on the same financial terms that would exist if the members of the cooperative processed, stored and sold their products on their own.

On this issue, the participants agreed to continue the discussion and, in particular, to further analyze the international experience in taxation of cooperatives.

"The war has aggravated the problems of the Ukrainian agricultural sector. Once again, large agricultural holdings are coming to the fore, while small and medium-sized farmers are put on an unequal footing with the oligarchs. The wealthy pay the tax once, while those with less pay it twice. Patronage dividends eliminate this injustice for those who organize themselves into cooperatives. This is the practice of developed countries, including our competitors in the international market. For example, Polish dairy continues to displace ours on the Ukrainian market. At this rate, in two years the domestic dairy industry will stop to exist. At that time, dairy cooperatives could recover this situation," emphasized Andrii Dykun, the UAC Chairman.