1. Introduction More than half of Koso- vo`s livestock were killed or stolen and about 40% of the livestock infrastructure - stockyards, sheds, etc. – destroyed during the 1998- 99 Kosovo-Serbia war (Ministry of Agriculture, Forestry and Rural Devel- opment [MAFRD], 2003). However, after the war, the livestock sector, specifi- cally dairy production has become one of the leading agricultural sub-sectors in Kosovo, contributing about 10% annually to GDP (By- tyqi et al., 2014). Dairy production increased by 4.4% to €118 million in 2012, compared to €113 million in 2010 (MAFRD, 2014). Kosovo`s dairy pro- duction is dominated by s- mall-scale farming, with an average of two cows per household (MAFRD, 2015). MAFRD (2015) estimates that in 2014 there were 63,874 households engaged in dairy production in Kosovo, producing an annual average of 278 MT of milk from 134,393 dairy cows. About 80% of do- mestic milk consumption is met by domestic production, with the remaining 20% met by imports. The main formal channels for milk marketing are milk collection centers and dairy plants. Small-scale dairy farm- ers usually deliver their milk to milk collection centers on a daily basis, while large-s- cale dairy farmers (i.e. those with more than 15 cows) are directly con- nected with dairy plants facilities. Most of the dairy plants in Kosovo are fairly integrated. They op- erate in terms of milk col- lection, pre-cooling, trans- portation, processing and marketing (wholesaling). Final dairy products are produced by dairy plants, then distributed by dairy plants individually to the retailers. However, since 2000, more than 50% of Koso- vo`s milk production has been sold informally, with two thirds of it either con- sumed on the farm or traded on the local unreg- ulated markets known as “green markets”, while the remainder is delivered to dairy plants for pro- cessing into dairy prod- ucts such as pasteurized milk, cheese, and yoghurt (Oldham et al., 2006). Tradition- ally, milk sales in the green market, including door-to-door sales attract a large clientele. The USAID (2013a) empha- sized that the government of Kosovo did not have the ca- pacity to monitor these milk sales via informal channels, therefore green markets were not taxed. In contrast to the green market, dairy farmers that deliv- ered milk to dairy processing plants (here after “dairy plants”)pay a 16% Value Added Tax (VAT). Since farmers were unregistered for VAT, their sales to dairy plants were without the VAT component. Therefore,upon sales of their finished products, the dairy plants had no way of discount- ing the tax value of the raw milk as an input. As a result, the dairy plants paid VAT obligations for the farmers in addi- Evaluating the impact of the Value Added Tax reform on raw milk collection in Kosovo Arben MUSLIU 1 , Egzon BAJRAMI 2 * , Francis TSIBOE 2 , Jennie S. POPP 2 29 1 University of Prishtina, Faculty of Agriculture and Veterinary Sci- ence, Pristina, Kosovo. 2 University of Arkansas, Department of Agricultural Economics and Agribusiness, Fayetteville, Arkansas, USA. *Corresponding author: bajramiegzon@hotmail.com Jel codeS: E62, Q18 NEW MEDIT N. 1/2017 Abstract The aim of this study was to assess the impact of the Value Added Tax (VAT) reform in 2013 on raw milk collection in Kosovo. A linear regression with pan- el-corrected standard errors model (LRPCSE) was used to statistically test the hypothesis of no effect of the 2013 VAT reform on the growth rate of monthly raw milk collection. The study utilizes panel data spanning from January 2011 to December 2015. Company level monthly sales, investment, price and raw milk collection data were collected from eight Kosovo dairy plants. Results re- vealed confirmatory evidence that the 2013 VAT reform significantly (p<0.05) increased the growth rate of monthly raw milk supplied to 60% of dairy plants by 9.7% for the period under consideration. This tax policy would possibly lead to a further formalization of dairy sector in the future. Keywords: tax reform, LRPCSE, dairy, Kosovo. Résumé Le but de cette étude est d'évaluer l’impact que la réforme de 2013 visant l'impôt sur la valeur ajoutée (TVA) a eu sur la collecte de lait cru au Kosovo. Une ré- gression linéaire utilisant un modèle à erreurs-type corrigées pour panel (LRPCSE) a été utilisée pour tester statistiquement l'hypothèse de l’absence d’effet de la réforme de la TVA de 2013 sur la croissance du taux de collecte mensuelle de lait cru. Cette étude utilise des données de panel chronologiques couvrant Janvier 2011 à Décembre 2015. Des données sur le niveau de vente mensuelle des sociétés, l’investissement, le prix et la collecte de lait cru ont été recueillis dans huit usines laitières au Kosovo. Les résultats ont révélé d’une manière significative (p < 0.05) que la réforme sur la TVA de 2013 a augmen- té de 9,7 % le taux de croissance de lait cru mensuel fourni à 60 % des usines laitières pour la période considérée. Cette politique fiscale pourrait conduire à une nouvelle formalisation du secteur laitier dans l’avenir. Mots-clés: réforme fiscale, LRPCSE, laitier, Kosovo.