News (#10 October 2020)

Draft

Rada adopted in first reading draft law on cutting VAT for agricultural sector to 14%

The Verkhovna Rada has adopted Draft Law No. 3656 in the first reading with a reduced preparation term for the second reading, which, among other things, provides for a reduction in the VAT rate for the agricultural sector from 20% to 14%.

It sets the VAT rate at 14% for operations related to the following agricultural products supply and import into Ukraine: cattle, live; pigs, live; parts, whole milk, wheat, rye, barley, oats, corn, soybeans, flax seeds, rapeseed and rape seeds, sunflower seeds, seeds and fruits of other oilseeds, sugar beets.

The explanatory note with reference to UCAB analysis based on USDA data and market operators for certain oilseeds and cereals states that a reduction in VAT from 20% to 14% will not lead to large-scale distortions in the structure of VAT revenues/losses for any of the stakeholders (state/company).

It is stressed that processing companies will be able to save 6% of costs when purchasing products due to lower tax liabilities of the manufacturer.

The authors of the draft also state that incentives to optimize tax liabilities, so-called cut downs, will disappear.

Rada upheld establishment of Bureau of Economic Security in first reading

The Verkhovna Rada adopted in the first reading the Law On Establishment of the Bureau of Economic Security, which is intended to replace the countrys tax police. For this Draft to come into force, MPs must support it in the second and final readings.

Draft Law No. 3087 states that the Bureau of Economic Security should counteract criminal offenses that have a material adverse effect on the national economy, contribute to the growth of its shadow sector, capital flow and other adverse phenomena that slow down economic growth and threaten national economic interests.

As the explanatory note stipulates, the function of law enforcement in the field of economic violations of business is currently performed by the tax police, the Security Service of Ukraine and the National Police of Ukraine. According to official statistics from the Prosecutor-Generals Office, 1,287 criminal proceedings for tax evasion were registered in 2019. At the same time, at the stage of pre-trial investigation this year, 262 criminal proceedings were closed, of which 259 due to the absence of corpus delicti in an alleged criminal offense. The Unified State Register of Court Decisions shows that the results of court proceedings on the relevant cases for a given period are only 18 convictions, namely: 10 convictions, of which 3 are on the basis of agreements on admission of guilt, and 8 are acquittals.

Tax reform

MPs have submitted Draft Law No. 4065-1 On Reduction of Pressure on Taxpayers on Part of Regulatory Authorities to Parliament.

The document establishes the following:

cancellation of the evaluation of transactions involving non-residents whether these have an economic effect (business purpose) and simultaneous exclusion of the standard establishing that financial result of the tax (reporting) period is increased by the amount of expenses incurred by the taxpayer when conducting transactions with non-residents if such transactions have no business purpose;

cancellation of the institution of taxpayers guilt for violation of tax legislation, definition of guilty acts and acts committed intentionally, ascertainment of a persons guilt by regulatory authorities, which come into force on 1 January 2021;

cancellation of the study on availability/non-availability of the circumstances of a taxpayers fault as to tax legislation violation, which should be ascertained by a special commission of the regulatory authority responsible for considering objections filed by taxpayers;

cancellation of the standard on application of punitive (financial) sanctions (fines), depending on ascertainment of the taxpayers guilt by the regulatory authorities (guilty acts/acts committed intentionally);

exclusion of a number of standards on enhancing the financial liability of taxpayers;

exclusion of provisions on extending areas of application of penalties on the amount of punitive (financial) sanctions not paid within the timeframes set by legislation;

cancellation of the possibility to introduce changes to the annual schedule of desk planned audits;

restoration of the general limitation period (up to 3 years), within which the supervisory authority has the right to conduct an audit and to determine the amount of monetary obligations in relation to personal income tax, military duty, independently;

restoration of the right of taxpayers not to increase their financial result before taxation by the amount of fines and penalties charged by the regulatory authorities and other government bodies for violation of legislative requirements;

reinstatement of the standard on suspension of planned and unplanned audits for major taxpayers only;

restoration of the right of individual entrepreneurs to include costs related to reconstruction, modernization and other types of improvement of fixed assets in the current period expenses.

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