Ukraine advised to eliminate tax breaks for meat producers

"After discussions with the government and the private sector, we are offering to reform the process of collecting VAT in the agricultural sector and establish a normal tax mode here,"​ said the report. The proposal is expected be made as part of a regular assessment of Ukraine’s economy, which will be carried out throughout 2014, starting at the end of May.

Earlier, Igor Schwaika, head of the Ministry of Agrarian Policy , had claimed that, in the state budget of Ukraine for the rest of 2014 and 2015, all tax breaks for livestock producers would be kept in place. However, analysts now say that Ukraine’s government has no choice but to fulfil the IMF’s recommendations.

At the same time, there is general agreement that the step could ruin the country’s meat industry. According to Ukraine’s former Minister of Agriculture Mykola Prysyazhnyuk, cancellation of tax benefits would seriously hit the livestock industry, which has been revitalised in recent years.

"When it comes to agriculture, the government cannot meddle with the common taxation regime. Tax breaks for the industry are, in fact, indirect state support, which encourages farmers to make investments. And in the country’s economy, livestock producers, in particular, need state support,"​ he said.

Producers protest​

Agricultural producers are now preparing a joint letter to the Ministry of Agrarian Policy, requesting them not to reform the tax system for the meat industry, as it could result in a sharp drop in production volumes.

"If tax benefits were cancelled, the total loss to agricultural producers would be more than UAH19bn (US$1.6bn), which could reduce the industry’s profitability by more than 50%,"​ said Alex Lissitsa, president of the Association of Ukrainian Agribusiness Clubs. "According to economists, the only direct economic effect from the elimination of tax breaks for farmers would be an 8% decline in gross agricultural output."​

The Association’s analysts also estimated that the abolition of benefits would affect 56,000 businesses that employ 650,000 workers. Should tax breaks be eliminated, the number of unprofitable businesses would rise from its current level of 17-30% of the total, or about 7,000-13,000, to more than 50% or 20,000.

According to the Alexei Marchenko, director on common policy at Agromars, the second-largest poultry producer in the country, if the law is adopted it would hit the small poultry producers first. "The major market players, such as MHP, have large margins, which the small companies usually do not have,"​ he said.

"Farms will be forced to reduce and, in some places, even stop production, which may adversely affect not only economic performance, but also the social position of the population,"​ added Ukrainian Agribusiness Club CEO Volodymyr Lapa.