Ukraine considers up to 7% VAT on agri firms

Ukraine’s Revenues and Fees Ministry is preparing amendments to the tax code that will cut tax preferences for agricultural companies, Forbes.ua reported on March 29, citing an anonymous source. The changes may include the introduction of a 7% value-added tax (VAT) for agri companies (the general VAT is 20% in Ukraine currently, and 17% starting 2014). Currently, agri companies don’t pay VAT but retain it in special accounts to use for investment purposes.



Another possible change, according to the source, is the revision of a fixed agricultural tax that the companies choose instead of a profit tax.



The income gained by agricultural and food companies from the current preferential VAT regime was UAH 15.8 bln (USD 2.0 bln) in 2012, according to the Revenues and Fees Ministry, while the Ukrainian Agribusiness Club lobbying group estimates total tax benefits to the sector at UAH 19 bln (USD 2.4 bln). Meanwhile, the aggregate profit of Ukrainian agricultural companies in 2012 amounted to UAH 20.1 bln (USD 2.5 bln).



Alexander Paraschiy: While it’s hard to predict the likelihood of the new tax regime being implemented, we believe the risks are high that some tax privileges will be cut, in one form or another.



The new VAT tax, if approved in the described form, will cut about a third of the VAT-related gains of Ukrainian agriculture and food companies. Gains from the preferential VAT regime accounted for 1-8% of revenue and 1%-22% of EBITDA of the listed Ukrainian farming/food companies, as of the last reporting period.



We believe farming/food companies will be able to partially compensate the costs of a new tax by charging higher prices for their output, so the total effect of new regulations on their bottom line would be small. Nearly absent food price inflation last year (as reported by the Ukrainian government), as well as strong soft commodity prices globally, allow for an increase in agri product prices.



The biggest gains from VAT preferences were enjoyed by MHP (MHPC LI, 21.7% of 2012 EBITDA), Avangard (AVGR LI, 16.6% of 2012 EBITDA), KSG Agro (KSG PW, 16.9% of 9M12 EBITDA) and Agroton (AGT PW, 15.3% of 9M12 EBITDA).



The effect of VAT-related gains on the operating profit on other agricultural firms, as of their latest reporting date, was much smaller: Kernel (KER PW, 7.5% of FY2012 EBITDA), Mryia (MAYA GR, 4.5% in 2012), Ovostar (OVO PW, 4.7% in 9M12) and Industrial Milk Company (IMC PW, 1.1% of 9M12 EBITDA). Astarta (AST PW) does not explicitly report its benefits from the VAT regime.

Источник: Конкорд Капитал