Dr. OLEKSANDR SAKHARENKO COUNSEL KESAREV CONSULTING ESTIMATION OF - - PowerPoint PPT Presentation

ESTIMATION OF THE SCALE OF THE «SHADOW» MARKET IN UKRAINE’S AGRICULTURE

• Dr. OLEKSANDR SAKHARENKO

COUNSEL KESAREV CONSULTING

ESTIMATION OF THE SIZE OF “SHADOW” LEASE OF AGRICULTURAL LAND BY COMPARING DATA OF STATEGEOCADASTRE AND STATE FISCAL SERVICE OF UKRAINE

29.8 4.4

5 10 15 20 25 30 35 40

All territory of Ukraine, excluding temporarily occupied territories

Приватні землі Державні землі

Total – 34.2m ha

Private lands Public lands

32.2 4.7

5 10 15 20 25 30 35 40

All territory of Ukraine

Приватні землі Державні землі

Total – 36.9m ha

Private lands Public lands

• Mln. hectares

AGRICULTURAL LAND THAT CAN BE LEASED (DATA OF STATEGEOCADASTRE)

• Mln. hectares

LANDS LOST DUE TO TEMPORARY OCCUPATION OF CRIMEA AND A PART OF DONBAS

Agriculture lands temporarily lost 7.3%

LAND OFFICIALLY CULTIVATED (DATA OF STATE FISCAL SERVICE) 35.48 24.21 26.58 28.77 22.25 20.42 15.06

4 8 12 16 20 24 28 32 36 2012* 2013* 2014* 2015 2016 2017 Обробка юр.особами - платниками єдиного с/г податку Потенційний обсяг тіньової оренди * Data for 2012-2014 are provides with exclusion of temporarily occupied territories in Crimea and Donbas Mln. hectares Cultivation by legal entities – payers of single agriculture tax Potential size of “shadow” land lease

15.06 13.78

2 4 6 8 10 12 14 16 Різниця наявної та офіційно оброблюваної землі 2017 р. (дані ГДК/ДФС) Різниця офіційно оброблюваної землі 2012-2017 рр. (дані ДФС)

POTENTIAL SIZE OF “SHADOW” CULTIVATION OF LAND (COMPARISON OF DATA OF STATEGEOCADASTRE AND STATE FISCAL SERVICE) 44.5% 40.3%

Mln. hectares Difference between the available and officially cultivated land, 2017 (data of SGC/ SFS) Difference of the officially cultivated land, 2012-2017 (data of SFS)

ESTIMATION OF LOSSES OF THE STATE BUDGET FROM THE “SHADOW” LEASE OF AGRICULTURAL LANDS

One of the main ways to conceal the “shadow” cultivation is the cultivation by third parties under the claim of cultivation:

• by “self-employed farmers”, i.e. by owners of land plots “for

personal use”

• by pensioners, who do not pay taxes.

It is actually impossible to prove that the harvest collected from the respective plot was then sold. This leads to non-payment of taxes from the received proceeds.

SCHEMES OF “SHADOW” CULTIVATION OF LAND

A “shadow” tenant pays no taxes as, formally, he/ she does not lease the land and conducts no economic activities on it. A land share holder pays the land tax, which is predominantly fixed on the minimal level of 0.3 per cent of normative monetary valuation of land or UAH100 (USD4)/ 1 ha/ year for arable land. If a land share holder is a pensioner (over 50 per cent of all the land share holders), he/ she shall pay nothing. Hence, the estimation of the actual annual tax burden is UAH50 (USD1.9)/ 1 ha. If a share holder cultivates land on his/her own, he/she, as a rule, sells the products for cash,does not declare proceeds received and pays no personal income tax on it. For products received from 2 ha there is a concession so the PIT is not paid legally.

TAX BURDEN ON 1 HECTARE WITH “SHADOW” PRODUCERS

The legal tenant pays:

• Min. UAH260 (USD10) of the single tax
• Approx. UAH240 (USD9) of PIT from the lease payment
• UAH220 (USD8.5) of PIT
• UAH240 (USD9) of the single social tax from workers’ salary
• UAH18 (USD0.7) of the military duty
• UAH515 (USD20) of VAT.

In general – ca. UAH1,400 (USD54) per 1 hectare. By estimations of agrarian associations, the minimal tax burden for 1 hectare is UAH2,000 (USD77), and average mean is UAH2,500 (USD96).

TAX BURDEN PER 1 HECTARE WITH LEGAL PRODUCERS (BASED ON OFFICIAL DATA OF THE STATE FISCAL SERVICE, 2017)

TAX BURDEN PER 1 HECTARE OF LEASED LAND, UAH (2017)

50 1400 2000 2500

500 1000 1500 2000 2500 Фактичне, "тіньова" оренда Офіційне (дані ДФС), "біла" оренда, мінімімальне Реальне, "біла" оренда, мінімальне Реальне, "біла" оренда, середньозважене UAH Actual, “shadow” lease Official (SFS data),

• fficial lease, minimum

Real, official lease, minimum Real, official lease, mean average

Hence, losses of the state budget from transfer of 1 ha of agricultural lands to “shadow” are:

• Minimum

– UAH1,350.

• Mean average

– UAH2,450. Overall losses of the state budget from the “shadow” lease are (estimation): Minimum – UAH18.6bn (USD715m) – UAH20.3bn (USD730m). Mean average – UAH33.8bn (USD1.3bn) – UAH36.9bn (USD1.42bn).

LOSSES OF THE STATE BUDGET FROM LAND’S TRANSFER TO “SHADOW” LEASE (2017)

LOSSES OF THE STATE BUDGET FROM THE TRANSFER OF LAND TO SHADOW LEASE 1350 2450

500 1000 1500 2000 2500 Мінімальні Середньозважені

Losses from 1 ha

UAH

18.6 20.3 33.8 36.9

5 10 15 20 25 30 35 40 Мінім. (13,78 млн. га) Мінім. (15,06 млн. га) Середн. (13,78 млн. га) Середн. (15,06 млн. га)

Total losses of the budget (est.)

Bln. UAH Minimum Mean average Minimum (13.78m ha) Mean average (13.78m ha) Mean average (15.06m ha) Minimum (15.06m ha)

ESTIMATION OF THE SIZE OF “SHADOW” LEASE OF AGRICULTURE LAND BY COMPARISON OF STATISTIC DATA AND SATELLITE SURVEY OF CROPS (WORLD BANK PROJECT)

METHODOLOGY OF ESTIMATION OF “SHADOW” USE OF LANDS

Pilot districts:

• Bila Tserkva district, Kyiv region.
• Snihuri district, Mykolayiv region.

Sources of information:

• Satellite images
• Orthophotomaps
• Index-cadastre maps
• Digital models of landscape
• Privatisation plans

Methodology:

• Collection of surface data of study and validation sampling of crops
• Recognition of actual use of land based on the satellite images
• Collection of cadastre and administrative data
• Comparison of satellite data with cadastre data on the boundaries of land plots,

rights for use and regime for lands protection and use. Accuracy of crops recognition results – about 85 per cent.

ACTUAL SIZE OF CULTIVATION Actual use of land Snihuri district Bila Tserkva district

• 1. Actual cultivation of registered agricultural lands

44.8% 40.4%

• 2. Registered agricultural lands are not cultivated

10.6% 3.2%

• 3. Actual cultivation of unregistered agricult. lands

22.0% 18.0%

• 4. Other lands

22.6% 38.3% Actual cultivation Snihuri district, 2016

Estimation of “shadow” use of agricultural lands: 28% - 29%

ESTIMATION OF THE SIZE OF “SHADOW” LEASE OF AGRICULTURAL LANDS IN UKRAINE

By estimation of Kesarev Consulting 40-44% By estimation of the World Bank project 28-29%

ESTIMATION OF THE “SHADOW” MARKET OF SUNFLOWER OIL

ESTIMATION OF THE SIZE OF “SHADOW” MARKET OF SUNFLOWER OIL BY COMPARISON OF PRODUCTION, CONSUMPTION AND EXPORTS 4.24 3.56 3.81 5.29 0.33 1.12 1.02 1.09

0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5 6,0 6,5 2013/14 МР 2014/15 МР 2015/16 МР 2016/17 МР Чистий експорт + Внутр. Споживання (ДержСтат) + Різниця внутр. споживання (USDA – ДержСтат) – Виробництво Виробництво Mt 2013/14MY 2014/15MY 2015/16MY 2016/17MY Net exports + Domestic consumption (UkrStat) + Difference of domestic consumption (USDA – UkrStat) – Production Production

ESTIMATION OF THE “SHADOW” MARKET OF SUNFLOWER AND SUNFLOWER OIL IN VOLUME TERMS

100 200 300 400 500 600 700 800 900 1 000 1 100 2014/15 МР 2015/16 МР 2016/17 МР Олія (максимум), вкл. дані USDA Олія (мінімум), дані ДержСтату

25% 25% 19% 3% 2% 2%

Kt 2014/15MY 2015/16MY 2016/17MY 250 500 750 1 000 1 250 1 500 1 750 2 000 2 250 2 500 2014/15 МР 2015/16 МР 2016/17 МР Соняшник (максимум), вкл. дані USDA Соняшник (мінімум), дані ДержСтату

20% 17% 3% 1% 2%

Kt

20%

Sunflower oil (maximum), incl. USDA data Sunflower oil (minimum), UkrStat data Sunflower (minimum), UkrStat data Sunflower (maximum), incl. USDA data

SIZE OF THE “SHADOW” MARKET OF SUNFLOWER AND SUNFLOWER OIL FOR THREE MARKETING YEARS IN MONETARY TERMS 16.06 19.03 21.53 15.95 18.48 20.45

2 4 6 8 10 12 14 16 18 20 22 2014/ 15МР 2015/ 16МР 2016/ 17МР Соняшник Соняшникова олія

• Bln. UAH

2014/15MY 2015/16MY 2016/17MY Sunflower Sunflower oil

SURVEY OF THE AGRARIANS REGARDING THE “SHADOW” MARKET OF AGRICULTURE PRODUCTS IN UKRAINE

39.4% 47.4% 13.2%

Among all, per cent

Так Ні Відмова відповідати Refuse to answer, as a rule, can be regarded as a non-wish to confess cash sales Refuse to answer No Yes

FARMS HAVE YOU SOLD YOUR PRODUCTS FOR CASH THIS YEAR?

Yes 52.3% No 47.7%

FARMS AGRICULTURE ENTERPRISES

Yes 84.7%

No

15.3%

DO YOU KNOW ABOUT THE CASES OF “SHADOW” LEASE OF LAND IN THE AREA, WHERE YOUR ENTERPRISE IS SITUATED?

per cent among those, who answered

• Dr. OLEKSANDR SAKHARENKO

COUNSEL, KESAREV CONSULTING

THANK YOU FOR YOUR ATTENTION!