New tax initiatives set to hit Ukrainian meat industry
The draft law proposes introducing a new fixed agricultural tax (FAT), based on 3% of the gross income of pig and cattle farmers and 5% for poultry farmers. Previously, all farmers paid just a fixed agricultural tax depending on the type and location of their land, with the rate set between 0.03% and 1% of the normative monetary value of the land.
Ukraine’s Finance Ministry expects the new tax to bring an additional UAH600 million (US$37.3m) to the state budget. It will probably be implemented at the same time as the cancellation of tax relief on VAT for meat producers, which the government is required to implement to meet the demands of the International Monetary Fund.
The proposal has shocked Ukraine’s meat and poultry producers, as the new tax system promises to significantly cut meat production margins in the country.
"Under the current version of the Tax Code, a simplified system of taxation is valid until 2018 and, until this date, there is no need to revise it," said Alexander Bakumenko, chairman of the board of directors for Ukraine’s Union of Poultry Breeders.
According to Bakumenko, Ukraine’s poultry industry is already under pressure, due to the fall of the exchange rate in country’s currency, the hryvnia, against the euro and the dollar. "The poultry industry attracts millions in investment and credit resources, including foreign currency. The devaluation [of the hryvnia] has already resulted in many losses to the business. So what kind of changes in tax legislation we can talk about now?" he asked.
Alexey Marchenko, CEO of the second-largest poultry producer in the country, Agromars, added that the new initiative may negatively affect the poultry industry. "Who knows what will happen with the industry in the current environment, as it gets more difficult to work every day with all these problems with devaluation, credits, and now new taxes," he said.
The country’s pig producers are also not happy with the new tax reform. President of Ukraine’s Association of Pig Producers Arthur Loza suggested that an increase in the tax burden may result in producers no longer revealing all their profits and keeping some of their production under wraps.
Meanwhile Volodymyr Lapa, general director of the Ukrainian Agribusiness Club, said the new tax could accelerate negative trends in Ukraine’s livestock industry. According to Lapa, the increase in the number of pigs this year will be only 1-1.5% year-on-year instead of last year’s 2%. The fall in production indicators in dairy farming also sped up to 2-4% year-on-year compared to 2% the previous year. The rate of growth in the poultry industry dropped from last year’s 9% to zero.
"If meat producers are forced to pay 3-5% in sales tax, we expect a 3-5% reduction in the number of cattle, pigs and poultry over the next few years. This will result in a reduction in export potential for the milk and poultry industries, and the growth of pork imports into the country," he predicted.
