LETTER OF STATE TAX ADMINISTRATION OF UKRAINE

of March 18, 1997 No. 16-1120-10/11-1872

About the value added tax

At the request of the Commission of the Verkhovna Rada of Ukraine concerning social policy and work of 11.02.97 N 06-3/12-89 State Tax Administration of Ukraine considered your letter of 22.01.97 N 04, about privileges on the value added tax and reports the following.

According to the Law of Ukraine of 22.12.95 N 488/95-BP "About modification and amendments in the Law of Ukraine "About the status of veterans of war, guarantees of their social protection" since 12.01.96 the shops, sections, departments and other trade enterprises serving disabled people and veterans of war according to the list and regulations established by the Government of the Autonomous Republic of Crimea, the regional, Kiev and Sevastopol city public administrations are exempted from the value added tax.

The taxation object the value added tax on services in servicing at these companies according to item 3 of Art. 3 of the Decree of the Cabinet of Ministers of Ukraine of 26.12.92 N 14-92 "About the value added tax" is the difference between sales prices of goods (works, services) and the prices on which they carry out settlings with suppliers, including tax amount on value added and therefore from the taxation the value added tax exempts at trade enterprises only the specified difference between the prices. The goods included in the specified lists are acquired in Ukraine by trade enterprises or imported as it is direct them, and for them, with the value added tax. Release of goods is not provided by this Law.

According to this Law the order of the Main state tax authorities of Ukraine of 11.03.96 N 21 "About entering of amendments into the Instruction "About procedure for calculation and tax discharge on value added" makes changes to the Instruction N 3 about tax exemption on value added of trade enterprises which serve disabled people and veterans of war. This order is registered in the Ministry of Justice of Ukraine 01.04.96 for N 148/1173, and therefore does not contradict legal acts of Ukraine and is obligatory for accomplishment by all companies, organizations, organizations and citizens.

The approximate minimum list food and nonfoods to which the privilege extends, is stated in the letter of the Ministry of Economics of Ukraine of 17.06.96 N 26-80/1398-10 "About trade servicing of disabled veterans" and is approved by the decision of the Cabinet of Ministers of Ukraine of 21.05.96 N 499/1. This list is sent to the address of the Regional State Administrations for determination on places of socially reasonable prices taking into account the available budget and other financial opportunities. Are included in it:

   ПРОДОВОЛЬСТВЕННЫЕ ТОВАРЫ     НЕПРОДОВОЛЬСТВЕННЫЕ ТОВАРЫ
   ---------------------        ------------------------
1. Хлеб, батоны или плетенки    1. Майки мужские
2. Крупы                        2. Трусы мужские
3. Макаронные изделия           3. Трусы и панталоны женские
4. Молоко питьевое              4. Рубашки ночные женские
5. Масло сливочное              5. Чулки или колготки женские
                                   хлопковые
6. Растительное масло           6. Носки мужские
7. Сахар                        7. Мыло хозяйственное и
                                   туалетное
                                8. Синтетические моющие
                                   средства

Necessary condition for provision of privilege on the value added tax according to item 1 of Art. 7 of the specified Decree and item 32 of the Instruction "About procedure for calculation and tax discharge on value added", the Main state tax authorities of Ukraine approved by the order 10.02.93 N 3 and Ukraine registered by the Ministry of Justice 31.03.93 for N 18, is conducting separate accounting of leviable and tax-free turnovers, i.e. separately on goods which directly are implemented to disabled people and veterans of war and separately on goods which are implemented to other categories of the population, and also separately the income (markup) from their realization.

Therefore if the trade enterprise serves other categories of citizens together with disabled people and veterans of war, including those which have in it agrees to legal acts other social privileges (for example, the citizens who were injured owing to the Chernobyl catastrophic crash, but not belonging to disabled people or veterans of war, veterans of work), it from certain part of services pays the value added tax.

Sumy of the value added tax which are paid or are subject to payment to suppliers for the acquired inventory items, works, services which are used for provision of the exempted services in servicing of disabled people and veterans of war, belong on their cost, and the value added tax which is paid or is subject to payment to suppliers for the acquired fixed business assets and intangible assets, becomes covered due to appropriate sources of their acquisition. Distribution of tax amounts on the fixed business assets and the registered intangible assets acquired and put into operation is performed according to item 40 of the Instruction "About procedure for calculation and tax discharge on value added", the Main state tax authorities of Ukraine approved by the order of 10.02.93 N 3 and Ukraine registered in the Ministry of Justice 31.03.93 for N18.

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