Ukraine government proposes agricultural subsidy cuts

Обзоры по компаниям и отраслям 22.07.2014 The Ukrainian government submitted a bill to parliament on July 21 that proposes the cancellation of VAT and income tax subsidies for large agricultural producers as of January 2015. The draft law states that only agriculture producers with revenue below UAH 20 mln and with land banks less than 1,000 ha would be eligible for an income tax subsidy (paying a tiny fixed agricultural tax instead of an income tax) and VAT subsidy. They will retain 80% of VAT due to be paid (currently enterprises retain 100% of the VAT due to be paid). Additionally, the bill proposes to extend the non-redemption of export-based VAT for grain exporters by another quarter, until Jan. 1, 2015. This redemption should have been restored in October 2014, according to austerity measures imposed in April. Roman Topolyuk: The government offered its outline for a new VAT regime, which was mentioned in an April IMF report on Ukraine. The cancellation of the subsidy, which has been one of the sources of state support for the sector, will have a negative effect on the earnings of Ukrainian listed agricultural producers. Their revenue and land bank exceed the proposed upper limits of eligibility for any subsidy. In 2013, the subsidy represented 4-25% of the companies’ EBITDA. The most exposed producers in the Ukrainian universe are MHP (MHPC LI, VAT grant generated 25% of EBITDA), Avangardco (AVGR LI, 18%), and Milkiland (MLK PW, 17%). The extension of a non-redemption of VAT will limit the profitability of grain exporters, like Kernel (KER PW), contrary to the previous expectations that grain exporters could get the VAT reimbursement starting in October 2014. We estimate that the risk is high for the bill to be approved by parliament.