VAT refund delays threaten Ukrainian grain traders’ competitiveness

Delays in VAT refunds from the state budget could force some Ukrainian agricultural exporters to change their trading practices and sell grain to companies with domestic VAT liabilities. This would allow accumulated input VAT credits to be offset against VAT obligations without waiting for refunds from the government. This was reported to Latifundist.com by Khrystyna Serebriakova, CEO of ASAP Agri, and Anatolii Kosovan, Managing Partner at Kosovan Legal Group.

Exporters have been reporting VAT refund delays since early September. In particular, Agromino completed a tax audit in late September and received approval for a refund related to a transaction carried out in July, but the company has yet to receive the funds. Another trader also reported a delay, noting that a message in its electronic taxpayer account indicated that the payment could not be made due to insufficient funds in the Treasury. However, VAT refunds have not stopped entirely: in September, the government refunded UAH 9.9 bln in VAT on goods produced in Ukraine.

The delays could have the greatest impact on traders focused exclusively on exports, as they lack sufficient domestic VAT liabilities to offset their accumulated tax credits. If refunds do not resume, some companies may begin selling agricultural products domestically to businesses with VAT liabilities that would subsequently export the goods themselves. In this case, accumulated input VAT credits could be used to offset VAT liabilities arising from other transactions.

Importing companies could become potential buyers under this arrangement. When importing goods into Ukraine, they incur VAT liabilities, while purchasing grain for subsequent export generates input VAT credits that can be used to offset those obligations. According to Kosovan, this is a legal tax offset mechanism and has nothing to do with fraudulent VAT schemes. Agricultural producers purchasing machinery, seeds, crop protection products, and other inputs, or selling products domestically, may find it easier to offset their input VAT credits against their own tax liabilities.

According to Serebriakova, traders without sufficient VAT liabilities for offsetting could effectively have funds equivalent to 14% or 20% of their turnover, depending on the transactions, tied up in the state budget. To replenish working capital, such companies may be forced to sell grain domestically to businesses capable of offsetting input VAT credits against their tax obligations.

Prolonged delays could reshape competition in Ukraine’s agricultural market. Companies able to offset VAT against domestic tax liabilities would have greater flexibility to offer farmers higher purchase prices, while exporters without this option risk losing their competitive positions. If the situation persists, it could lead to a redistribution of market share and even bankruptcies among some grain trading companies.

Tags: Ukraine, export, taxes, agricultural products