By KYIV. Jan 11 (Interfax-Ukraine) – Before the Russian full-scale invasion of Ukraine in February 2022, some 40% of grains and 10-30% of oilseeds were sold unofficially through mutual settlements in cash, and when the war broke out, the shadow turnover of agricultural products approximately increased to a half of the total sales volume.
According to the War Impact on Agricultural Sector of Ukraine survey, conducted by the Center for Economic Recovery, around 27% of the official gross value added of the country’s agricultural sector was in the shadow in 2021, while in 2020 this figure was 31%.
"Small farmers with a land bank of up to 200 hectares, which account for almost 70% of the total number of grain enterprises, have faced problems with financing, taxation, rent, etc. since the beginning of the war. This forced small producers to partially or completely move into the shadow economy. It is rather difficult to assess the scale of the transition of small farmers into the shadow as a result of the war. However, according to experts, almost half of the sale in agriculture is carried out in cash now," the research says.
According to it, when the full-scale invasion of Russia began, small farmers acutely felt the impact of logistics problems, the rise in the cost of means of production, non-refund of VAT, and exchange rate differences, which forced a certain proportion of small producers to go into the shadows in order to maintain marginality. Among the main reasons for going into the shadows are, first of all, the non-refund of VAT and the high cost of lending (about 24% per annum).
"Currently, 95% of VAT refunds have been transferred to audits and 5% have been confirmed in-house. Before the war, the situation was the opposite. This forces producers, especially small farmers, to go into the ‘shadow’ and sell products for cash," the research said.
According to it, UAH 52 billion of VAT was reimbursed in Ukraine out of UAH 222 billion paid over the nine months of 2022, while for the same period in 2021 – UAH 111 billion of VAT was reimbursed out of UAH 225 billion paid.
The Center for Economic Recovery said that possible problems with VAT refunds can be resolved by fully restoring timely tax refunds (the best option advocated by manufacturers and industry experts); provision of VAT bonds (according to experts, they will compete with government bonds and solve the problem only partially); compensation from a reduction in the size of the VAT fee by writing off part of the current VAT; attraction of international organizations (the state assumes obligations to foreign financial organizations that reimburse VAT to Ukrainian producers).
