Change to Tax Legislation Stimulates Domestic Agriculture

USAID-championed incentive encourages formal growth

PRISTINA, KosovoA newly signed amendment to Kosovos tax legislation championed by USAID should strengthen the farm sector, other raw agricultural products. The administrative instruction, signed Sept. 10, 2013, effectively discounts the 16% value-added tax (VAT) that dairies and collection centers previously paid on the full value of their finished products. The incentive works by allowing these middlemen to claim a credit for VAT owed by the primary producers of the raw milk and other agricultural inputs that they purchase, process, package and then sell to the public. The change should make domestic products more cost competitive against imported goods, said Milazim Berisha, head of the Kosovo Association of Milk Producers. While VAT receipts should dip in the short term, the government should collect more of the tax in the longer term, as sales of finished agricultural products increase, said Arben Musliu, a dairy expert with USAIDs New Opportunities for Agriculture project. This is a great achievement for Kosovo agriculture, particularly for dairies, said Ramadan Memaj, president of the Kosovo Dairy Processors Association. USAIDs support was a real catalyst. USAID spent nearly a year promoting the change, at the request of dairy producers and processors. The main objective was to increase agricultural sales through formal channels. (While USAID initially proposed applying the change only to raw milk, Kosovo officials expanded it to cover other raw agricultural inputs as well.) Currently, an estimated 50% to 70% of the raw milk produced in Kosovo is sold informally. The government does not collect VAT on this milk. Nor can the government monitor, measure or otherwise control the milk sold this way. Now, the VAT change should incentivize more formal sales. That will positively impact both the public coffers and the public health, Musliu said. The incentive also should formalize the status of an estimated 20,000 dairy and other farmers, said Kosovos minister of finance, Besim Beqaj. It will do so by allowing middlemen to claim the VAT credit only for purchases of raw product made from government-registered producers. This requirement should encourage these producers to registerand pay VAT on the raw inputs they supply. Otherwise, any producers who dont register

Kosovo Government signs administrative instruction which introduces VAT flat rate for agriculture primary products.

With this solution, everyone wins.

Blerand Stavileci, Kosovos Minister of Agriculture.

will face limited sales opportunities. With this solution, everyone wins, Kosovos minister of agriculture, Blerand Stavileci, said.