According to various estimates, 30-40% of agricultural land of Ukraine is cultivated legally without registering a farming enterprise (FE), without transferring a land plot to lease without signing a lease agreement, etc.
In monetary terms, to assess the scale of these 30-40%, the state is considered to lose up to 7 billion hryvnia annually from shady cultivation of agricultural land and from the illegal sale of various agricultural products.
The first draft of the law called “on unshadowing” was registered in the Verkhovna Rada of Ukraine in February 2020. In the process of adopting the draft law by the committees of the Verkhovna Rada, alternative draft laws No. 3131-1, No. 3131-2, and subsequently No. 3131-d appeared.
What is proposed?
A new term is introduced into the Tax Code of Ukraine – an established tax obligation.
The established tax obligation and in accordance with Draft Law No. 3131-d – the minimum tax obligation of a legal entity or individual (including an individual entrepreneur) – the owner, lessee, user on other terms (including emphyteusis terms), land plot of agricultural purpose (except for non-agricultural land) and / or land share.
The amount of assigned tax liabilities calculated for each of the land plots belonging to one owner and / or are in his use on a lease (emphyteusis) terms or other terms of usage, is the total assigned tax liability. Total assigned tax liability – the amount of delivered tax liabilities calculated for each of the land plots owned by one owner and / or are in his use on a lease (emphyteusis) or other use.
The total assigned tax liability will consist of all of the assigned tax liabilities of a particular taxpayer.
The taxpayer himself shall establish the amount of the total assigned tax liability, if the profit from the sale are not received from tax agents.
According to the deputies’ estimates, in 2020 the assigned tax liability will maximum amount to UAH 1400, since the average normative monetary value of a land plot is UAH 28,000 per hectare.
Compared with the draft law 3131 – the coefficient has changed. At first, it was the same for everyone and amounted to 0.05 (or 5%), in the draft law 3131-d the coefficient is set individually and will be less.
Also, while determining the taxpayer, draft law 3131-d focuses on land plots as the main criteria for exemption from the tax obligation (in bill 3131, the users of the plots were decisive).
The assigned tax obligation will be introduced by stages. The coefficient in 2021 will amount to 3% and will be increased by 0.5% annually until reaching 4.5%. At the same time, for farm enterprise only a coefficient of 2% has been established, and in 2021-22 the rate will amount to zero for self-employed individual and farms. In 2021, penalties will not also be charged.[vcex_divider color=”#dddddd” width=”100%” height=”1px” margin_top=”20″ margin_bottom=”20″]
What does it look like?
“We can draw an analogy with the obligation to pay the minimum amount of single social security tax regardless of the economic success of an individual entrepreneur. After all, even if the land plot does not bring income, one must pay assigned tax obigation. Will this stimulate the owner to use the land plot for agricultural production?
Some of the young and ambitious owners – yes. And some of the owners it will stimulate to sell the land or lease it. And this sale / lease will not be conditioned by a true desire, a high market price, but, on the contrary, by the lack of the ability to pay assigned tax obigation, “says Viktoria Kovalchuk.[vcex_divider color=”#dddddd” width=”100%” height=”1px” margin_top=”20″ margin_bottom=”20″]
Will there be an incentive to use the land?
“4.5% of the normative monetary value of a land plot is on average UAH 1215 per hectare. As we have already mentioned, for certain categories this rate has been reduced by 2% – that is euqval to 540 hryvnia per hectare[vcex_divider color=”#dddddd” width=”100%” height=”1px” margin_top=”20″ margin_bottom=”20″]
How hard can this affect the farmers?
Several examples of the approximate profitability of 1 hectare of land based on information from the Agribusiness Today website. The market value of grown winter wheat per hectare is UAH 14 000, winter rapeseed – UAH 12 000, sunflower – from UAH 11 to 15 000.
This is the amount after deducting the costs of rent, seeds, water, fertilizers, machinery, wages, transportation and storage of grown products. In Otherwords, the assigned tax obligation will amount to 10% of the profit, “the lawyer emphasizes.
The authors of the draft bill No. 3131-d in an explanatory note to it indicaded that according to the Land Cadastre, the volume of agricultural land is 41,500,000 hectars, whereof according to the State Statistics Service, 28 million hectares are cultivated, whereof 19.6 million hectares in official cultivation (rent). Accordingly, 8400000 ha are “processed independently”, or in other words, they are used in various shady schemes.
Thus, according to the calculation: 8400000 ha x UAH 1400 / 1 ha – additional income from the implementation of the assigned tax obligation will amount to about UAH 12 billion in year.
Will the draft law No. 3131-d increase the tax burden if it is adopted? Definitely yes. Will it bring [the draft law] farmers out of the shadows? Probably, it will partly do so, – notes Victoria Kovalchuk.
“In my opinion, only a comprehensive strategy for the development of the agricultural sector, especially in terms of realizing the rights of owners of agricultural land, stimulating the activities of farms, government support and other measures aimed at developing small and medium-sized agribusiness will have a positive effect in the form of unshadowing.
To date, the “formalization” of the activities of the farm, formalization of the formal lease of land plots often causes only fears among the owners – fears of excessive tax pressure, excessive regulation, state control, and vice versa, the lack of nature of “service” functions in the authorized state bodies, the absence of (clear and constant for a long time) tax law and other relevant legislation.
There is one more problem that needs to be worked on in the transition period before the start of the full functioning of the teaching staff. These are financial and tax illiteracy of the population, lack of access to simple and understandable services for the formation and submission of tax returns, the remoteness of land owners / users from taxpayer service centers and others due to the fact that the population is not used to pay taxes on their own, “- recalled lawyer Victoria Kovalchuk …