Imports of wheat and flour again subjected to value added tax

Analysis Materials 18 July 2011 14:51 (UTC +04:00)

Having strategic importance for food security of the state, the wheat, grains and products from them last week were again subjected to value added tax (VAT) when imported into Azerbaijan. The Cabinet of Ministers made a decision to abolish in the Republic the VAT exemption of imported grain, meslin (a mixture of wheat and rye), wheat and rye flour from July 10 this year. The duration of the last tax exemption was reduced according to estimates by the Ministry of Economic Development, Ministry of Agriculture and Ministry of Emergency Situations.

The practice of tax privileges for the importers of wheat and other products have been applied in Azerbaijan not for the first year. The last period of the VAT exemption (which is 18 percent in the country) had been operated from Dec. 3, 2010, and had to be canceled from August of this year. However, the early cancellation of import privileges in the production of corn and wheat promises market the prospects. If the first removal of VAT on the import of wheat was explained via the higher prices for bread and flour, which was caused by the shortage of wheat in the country, last year's tax privileges more focused on market adjustments, and later were justified by excessive spring floods of the rivers and flooding in large areas of agricultural land.

As a result, the production of wheat last year lagged behind the indicators of the previous year - a record - by about a quarter. More precisely, in 2010 there were 2,000,900 tons of grain was harvested, which is 33 percent less than 2009. The forecasts of this year promises to come back to the indicators of 2009.

It should be noted that according to the State Program on Reliable Provision of Population with Food Products in 2008-2015, the annual cereal production in the country should reach about 2.8 million tons. In 2011, production in Azerbaijan is expected at 2.5 million tons of grain, which exceeds last year's indicators by 500,000 tons.

The needs of the population and economy of the Republic for crops is currently about 3-3.2 million tons. The missing part is imported from other countries. Today, Azerbaijan imports grain from Russia and Kazakhstan.

A good example of the effectiveness of the scheme, according to which the deficit in the domestic production is compensated by supplies of grain and flour from abroad, may be the last year, during which even a sharp drop in production - according to the official sources - did not lead to a shortage of this type of product. And although the cost of the same flour at retail has increased in some way, to speak on the next unauthorized rise in bread prices last year was not necessary.

According to the State Customs Committee of Azerbaijan, for the first five months of this year, imports of cereals into the country increased by 50 percent compared to the corresponding period of the last year, and flour - 74 times. Grain production in Azerbaijan in 2011 will increase by 400,000 tons. At present, there is a sufficient volume of grain and flour. The main objective of the elimination of VAT exemption on imports is to protect the domestic market - local farms should be able to sell their crops. It is also important to ensure the growing interest of local farmers to grow grain and reduce the volume of imports.

The Republic has created annual grain reserve both from local and imported grains.
Last year the country imported 1.3 million tons of grain and 2 million tons were produced by local farmers, including 1.3 million tons of wheat. Today, already 1.730 million tons of grain have been harvested, so the country has sufficient grain reserves in order to avoid shortages or price increases for bread. According to the Agriculture Ministry, as of June 22, 2011, wheat has been sown on an area of ​​268 hectares, whereas last year in an area of ​​551 hectares.

And it needs to agree that with this enormous growth of imports, the first matter is protect local products and the interests of the Azerbaijani farmers engaged in cultivation of wheat, which now has to compete with imported and, by definition, a cheaper product. Now the government will have the problem to prevent any rise in prices for grain, flour and bread, which the representatives of business will likely justify via the return of VAT.