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

AGRICULTURAL LAND THAT CAN BE LEASED (DATA OF STATEGEOCADASTRE) All territory of Ukraine, excluding All territory of Ukraine temporarily occupied territories 40 40 Total – 36.9m ha Total – 34.2m ha 35 4.7 35 4.4 30 30 25 25 20 20 32.2 15 29.8 15 10 10 5 5 0 0 Mln. hectares Mln. hectares Приватні землі Private lands Державні землі Public lands Приватні землі Державні землі Private lands Public lands

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) 36 32 15.06 28 24 20 35.48 16 28.77 26.58 24.21 12 22.25 20.42 8 4 0 2012* 2013* 2014* 2015 2016 2017 Mln. hectares Potential size of “shadow” land lease Cultivation by legal entities – payers of single agriculture tax 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

POTENTIAL SIZE OF “SHADOW” CULTIVATION OF LAND (COMPARISON OF DATA OF STATEGEOCADASTRE AND STATE FISCAL SERVICE) 16 44.5% 40.3% 14 12 10 8 15.06 13.78 6 4 2 0 Mln. Різниця наявної та офіційно оброблюваної землі 2017 р. (дані ГДК/ДФС) Difference between the available and officially cultivated land, 2017 (data of SGC/ SFS) hectares Різниця офіційно оброблюваної землі 2012 - 2017 рр. (дані ДФС) 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

SCHEMES OF “SHADOW” CULTIVATION OF LAND One of the main ways to conceal the “shadow” cultivation is the cultivation by third parties under the claim of cultivation : • b y “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.

TAX BURDEN ON 1 HECTARE WITH “SHADOW” PRODUCERS 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 PER 1 HECTARE WITH LEGAL PRODUCERS (BASED ON OFFICIAL DATA OF THE STATE FISCAL SERVICE, 2017) 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 OF LEASED LAND, UAH (2017) 2500 2500 2000 2000 1400 1500 1000 500 50 0 Actual, Real, official lease, Real, official lease, Official (SFS data), Фактичне, Офіційне (дані ДФС), "біла" Реальне, "біла" оренда, Реальне, "біла" оренда, UAH “shadow” lease minimum mean average official lease, minimum "тіньова" оренда оренда, мінімімальне мінімальне середньозважене

LOSSES OF THE STATE BUDGET FROM LAND’S TRANSFER TO “SHADOW” LEASE (2017) 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 THE TRANSFER OF LAND TO SHADOW LEASE Losses from 1 ha Total losses of the budget (est.) 2450 2500 40 36.9 33.8 35 2000 30 25 1500 1350 20.3 18.6 20 15 1000 10 500 5 0 0 Bln. Minimum Minimum Mean average Mean average Мінім. Мінім. Середн. Середн. UAH Minimum Mean average Мінімальні Середньозважені UAH (13.78m ha) (15.06m ha) (13.78m ha) (15.06m ha) (13,78 млн. га) (15,06 млн. га) (13,78 млн. га) (15,06 млн. га)

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% Estimation of “shadow” use of Actual cultivation agricultural lands: Snihuri district, 2016 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 6,5 6,0 1.09 5,5 5,0 4,5 0.33 1.02 1.12 4,0 3,5 3,0 5.29 2,5 4.24 2,0 3.81 3.56 1,5 1,0 0,5 0,0 2013/14MY 2014/15MY 2015/16MY 2016/17MY Mt 2013/14 МР 2014/15 МР 2015/16 МР 2016/17 МР Чистий експорт + Внутр. Споживання (ДержСтат) + Різниця внутр. споживання (USDA – ДержСтат) – Виробництво Net exports + Domestic consumption (UkrStat) + Difference of domestic consumption (USDA – UkrStat) – Production Production Виробництво

ESTIMATION OF THE “SHADOW” MARKET OF SUNFLOWER AND SUNFLOWER OIL IN VOLUME TERMS 2 500 1 100 2% 2% 1% 1 000 2 250 2% 3% 3% 900 2 000 800 1 750 700 1 500 600 1 250 500 25% 25% 19% 20% 20% 17% 1 000 400 750 300 500 200 250 100 0 0 Kt 2014/15MY 2015/16MY 2016/17MY 2014/15 МР 2015/16 МР 2016/17 МР Kt 2014/15 МР 2015/16 МР 2016/17 МР Sunflower oil (maximum), incl. USDA data Олія (максимум), вкл. дані USDA Соняшник (максимум), вкл. дані USDA Sunflower (maximum), incl. USDA data Sunflower oil (minimum), UkrStat data Олія (мінімум), дані ДержСтату Соняшник (мінімум), дані ДержСтату Sunflower (minimum), UkrStat data

SIZE OF THE “SHADOW” MARKET OF SUNFLOWER AND SUNFLOWER OIL FOR THREE MARKETING YEARS IN MONETARY TERMS 21.53 22 20.45 19.03 20 18.48 18 16.06 15.95 16 14 12 10 8 6 4 2 0 Bln. UAH 2014/15MY 2014/ 15МР 2015/16MY 2015/ 16МР 2016/17MY 2016/ 17МР Sunflower Sunflower oil Соняшник Соняшникова олія

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

HAVE YOU SOLD YOUR PRODUCTS FOR CASH THIS YEAR? FARMS Among all, per cent 13.2% Refuse to answer, 39.4% as a rule, can be regarded as a non-wish to confess cash sales 47.4% Так Ні Відмова відповідати Yes No Refuse to answer

DO YOU KNOW ABOUT THE CASES OF “SHADOW” LEASE OF LAND IN THE AREA, WHERE YOUR ENTERPRISE IS SITUATED? FARMS AGRICULTURE ENTERPRISES per cent among those, who answered No Yes Yes No 84.7% 52.3% 47.7% 15.3%

THANK YOU FOR YOUR ATTENTION! Dr. OLEKSANDR SAKHARENKO COUNSEL, KESAREV CONSULTING