The reduction in the VAT rate to 14% for certain goods contrary to the agreements with the EU and IMF

the Verkhovna Rada in the second reading and generally supported the draft law No. 3656, which provides for the reduction in the VAT rate from 20% to 14% on the transactions of supply and import to Ukraine of individual agricultural products, particularly cattle (0102), live swine (0103), whole milk (0401), wheat (1001), rye (1002), barley (1003) oats (1004) maize (1005), soybeans (1201), Flaxseed (1204), canola (1205) and sunflower seeds (1206), as well as other oilseeds (1207), sugar beet (1212).

New document was perceived ambiguously because, on the one hand, farmers will receive benefits to pay VAT, on the other – the budget revenues will decrease on the background of growth of the budget deficit and delays in assistance programs from the IMF and other organizations.

In the explanatory note to the law States that the rate reduction will not cause significant changes in the structure of income/loss of VAT neither the state nor the companies. At the same processors will save 6% when you buy products, and the reasons for optimization of tax liabilities will disappear, which will lead to the legalization of agricultural production and increase revenues.

the New law will reduce the tax burden on agricultural producers, which will reduce the cost of raw materials for processors by the difference in VAT.

However, at the Kyiv School of Economics (KSE) stated that this bill is contrary to the provisions of the Association Agreement between Ukraine and the EU, and agreements on cooperation with the IMF.

According to the Memorandum with the IMF, Ukraine promised "during the program period to refrain from introducing new tax exemptions or tax credits, with the exception of the previously adopted".

in connection with the Association Agreement between Ukraine and the EU, Ukraine is obliged to approximate its legislation to the European, in particular in terms of EU Directive No. 2006/112/EC of 28.11. 2006 on joint VAT system, which provides lower rates only for goods direct development, not production.

in addition, to avoid a structural imbalance in society and distortion of competition in certain areas of activity, set a standard minimum VAT rate of 15% with the ability to view, - noted in KSE.

IN CSE drew attention to the fact that the accompanying bill documents, no explanation for why farmers need to reduce the rate of VAT, and why it is so. In addition, unknown the main beneficiaries of this benefit and its impact on revenues, and the lack of financial and economic justification to the bill to evaluate its impact on the budget in 2021.