The Cabinet of Ministers is proposing to eliminate VAT payment exemptions for Ukraine’s agricultural sector that have been in place since 1999, as outlined in a new draft bill submitted yesterday to parliament for discussion. The bill apparently has broad approval from several high-profile ministries as well as the tax administration. The current VAT law stipulates that agro producers do not pay VAT, rather they keep the difference between output and input VAT and use the funds for production purposes.

Dmytro Ushenko: The move is likely aimed at improving state budget revenues (in 2009 VAT benefits totalled about US$ 780mn), and we also do not rule out the initiative is a step to satisfy IMF requests tied to the new loan program. The cancelation of the subsidies will depress margins for primary agro/food producers including listed names Mriya (MAYA GR), Sintal (SNPS GR), Landkom (LKI LN), MCB Agricole (4GW1 GR), Agroton (A2TA GR), Myronivsky Hliboproduct (MHPC LI), and Astarta (AST PW) – in the first place those that generate higher added-value like MHP. On the other hand, companies that mainly purchase inputs from third parties like Kernel (KER PW) will only be marginally affected.