VAT Refunds for Agricultural Exporters

Proposal to Improve the VAT Refund Mechanism for Agricultural Exporters

1. Description of the Current Problem

The current system for refunding VAT on agricultural exports creates significant systemic risks for the sector:

Up to 80% of the VAT that exporters claim for refund is effectively not reimbursed.

Imbalances arise between large and small agricultural producers (APs).

Prices and supply chains become distorted.

The key reason is that the current mechanism does not take into account the structure of input VAT or the benefits that APs receive.

2. The Nature of the Imbalances

When claiming VAT for refund, exporters include:

VAT payable by the AP itself

VAT across the entire production chain (fertilizers, fuels and lubricants, machinery, spare parts, etc.)

At the same time:

Large APs that export on their own → can use the benefit effectively.

Small APs that sell their products to exporters → are forced to offer a price discount.

Important: The size of the discount is always smaller than the benefit actually received, because the benefit applies only to net VAT payable (after deducting input VAT).

📌 As a result:

competition is distorted

market consolidation intensifies

the position of small agribusiness deteriorates

3. Proposed Solution

I propose moving to a personalized (individual) calculation of the VAT to be refunded, based on the share of the benefit accrued to the AP.

Key principle:

The exporter is denied a refund only for the portion of VAT that corresponds to the benefit received by the AP, rather than for all input VAT.

4. Implementation Mechanism

Step 1. Determining the benefit at the AP level

The benefit arises at the moment the AP sells its products.

Example:

Sales volume: KZT 100 million

VAT (16%): KZT 16 million

Input VAT: KZT 8 million

VAT payable: KZT 8 million

Benefit (80%): KZT 6.4 million

Step 2. Calculating the share of the benefit

Share of the benefit in turnover:

6.4 / 100 = 6.4%

This means that in every sale:

16% is total VAT

of which 6.4% is the benefit portion (not refundable on export)

the remaining 9.6% is refundable

Step 3. Linking to the invoice

For each invoice, the following is recorded automatically:

total VAT

the share of benefit-related VAT

the share of VAT eligible for refund

Step 4. Refund for the exporter

When applying for a VAT refund, the exporter:

claims only the portion of VAT net of the benefit component

📌 Example:

For a purchase of KZT 50 million:

VAT: KZT 8 million

Refundable VAT:

9.6% → KZT 4.8 million

Non-refundable (benefit-related):

6.4% → KZT 3.2 million

5. Expected Effects

Introducing the proposed mechanism will:

1. Eliminate market distortions

Equalize conditions between large and small APs

2. Reduce pressure on small producers

Remove the need to offer a discount

3. Increase the transparency of the VAT system

Provide a clear picture of the VAT structure across the entire chain

4. Preserve fiscal balance

The state continues to withhold only the benefit actually granted

5. Reduce the risk of abuse

Rule out the possibility of inflating refund claims

6. Technical Feasibility

Implementation is possible through:

upgrading the electronic invoice (ESF) system

automatic allocation of the benefit in proportion to turnover

integration with the VAT accounting system

7. Conclusion

The proposed model:

corrects the current distortions in a targeted way,

does not require radical reform of the tax system,

and balances the interests of the state, exporters and producers.