Ukraine. VAT refund and subsidy payment in Q1 2017: a non-dynamic pair for agricultural companies
In the piece “How the pair feels – VAT and subsidies for farmers” published in mid-March, we analyzed the situation about the state authorities’ intention to improve the VAT refund system for agricultural companies and simultaneously introduce a subsidy regime for them. Ultimately, we summed up: “We tried our best, you know the rest? It’s still early to draw such a conclusion.”
Following January’s zero VAT refund (a combined UAH 28 Ml was refunded) and February’s record (the refunds approximated UAH 17 Bl!), March turned out to be a bumper month with its refunds totaling UAH 9.9 Bl. Remarkably, the lion’s share of the March amount (UAH 8.5 Bl) was paid in the last day of the month (see the diagram). Taking into account the negative experience of January, this payment delay seriously confused the financial and economic plans of companies.
Thus, UAH 26.9 Bl was refunded in Q1 2017, or on average UAH 8.98 Bl a month. The 2016 refund payments were smoother in terms of their monthly amounts, averaging UAH 7.4 Bl a month.
The actual failure of VAT refund in January was officially explained by a technical process of transferring the electronic system of application registers to the Finance Ministry’s supervision. Independent experts explained this delay by the need to support the hryvnia, which weakened rather significantly early in the year (the hryvnia’s downturn in early January was associated with large-scale VAT refunds in the end of 2016).
Quasi-technical and financial problems were present in March again. The former perhaps include a sensitive staffing problem in the top management of the State Fiscal Service, which took time for legally formal and managerial actions to reallocate duties and get into the normal working routine.
The latter group includes a shortage of government financial resources. This is indicated by the balance of payments, which was drawn up with a USD 229 Ml deficit in January-February 2017. The current account deficit amounted to USD 541 Ml. The IMF tranche of USD 1 Bl the government expected to receive in February, has not come yet.
A new electronic system of automated, transparent and fair VAT refunds with personal payer cabinets was put into operation on April 1. President Petro Poroshenko stressed at the March 31 meeting of the National Reforms Council: “from April 1 on, the entire society, at last, businesses, civic activists will see an open VAT register. This is what they have waited for for 25 years. This was a closed book.”
This is great that the automated and transparent VAT refund system is beginning to operate. Now it is necessary to provide this system with required financial resources.
With regard to the subsidies, the following news are coming “from the fields”:
1/ Mykhailo Sokolov, Deputy Head of the All-Ukrainian Agrarian Council says Ukrainian agricultural producers will receive subsidies no sooner than May: “Judging by the current progress, the subsidies will be paid, if all goes well, in May. Why? Because only part of regulatory acts needed to launch this mechanism have been adopted to date.”
2/ In early March, agricultural civic organizations officially requested Ukrainian Ag Minister Taras Kutovy to amend the State subsidy allocation procedure itself. So, their criticism concerns a gap in time between putting in resources and obtaining revenues from crop produce sales because of the seasonal factor. Also, due to a monthly limit imposed on subsidy payments, both crop and animal farmers will receive limited subsidies in the first half year. In the latter half year, when the VAT payment amounts will rise sharply, they will get back just small part of the paid VAT due to the limit.
3/ Leonid Kozachenko, Head of the Ukrainian Agrarian Confederation expressed concerns that this year’s state subsidies would not exceed UAH 3 Bl, though the State Budget envisages roughly UAH 5.5 Bl for these purposes. UAH 3 Bl is a guaranteed, secured budgetary amount and UAH 2.5 Bl is to come to agricultural companies from a so-called special fund, which can disburse subsidies as filled with returned money of Yanukovych and other corrupt officials.
Every innovation needs time for its launch and debugging. Hopefully, the first quarter of 2017 is right a transitional period for making the new system of VAT refunds and farmer subsidies a smoothly running one. At the same time, the matter does not yet concern the refund and subsidy amounts – it would be good to at least avoid disruptions in the mechanisms.