The government proposes to increase taxes: in July, the Cabinet of Ministers approved two draft laws: the first one on amendments to the Tax Code to finance additional military spending, and the second one on amendments to the state budget to increase military spending.
The government estimates additional critical needs at UAH 500.3 billion, including UAH 495.3 billion for defence. In fact, the tax increase will affect all Ukrainians, not just businesses. In particular, the military tax, the excise tax rate on fuel, and possibly the price of new cars will increase – it is planned to impose a 15% military tax on their sale.
This has already caused a great public outcry: experts say that the tax increase will cause a rapid rise in prices for all food products, and most businesses may go into the “shadows”. In particular, the NBU has already warned that if a military tax on corporate income is introduced, food prices in Ukraine will rise significantly.
[Kommersant] tried to understand the rationale for a sharp increase in the tax burden on Ukrainians.
Taxes as a help to the army
Recently, the head of the Budget Committee, Roksolana Pidlasa, said that the military may be left without salaries at the end of September, which is why the Defence Forces need a tax increase as soon as possible.
“We need the budget amendments to be signed and put into effect by mid-September,” she said, adding that government officials and MPs need to find UAH 500 billion for the military, of which UAH 495 billion will be spent on defence, and UAH 1 billion is planned to be allocated for a pilot project on dental prosthetics and dental treatment for veterans at state expense.
400 million is allocated for financial assistance to Ukrainians released from captivity. An additional UAH 101 million is allocated for the execution of sentences by penitentiary institutions and another UAH 4.5 billion to replenish the State Budget Reserve Fund.
According to economist Oleh Pendzyn, tax increases are unavoidable, and civilians’ refusal to pay them can only mean an unwillingness to help the Defence Forces.
“We have to realise that if no funds are found to pay the military, people will be left without money. What other sources are there that can currently provide funding for defence security? The only other thing that can help is economic reservation, which will make it possible to create an additional financial resource for payments to the military without raising taxes. The question is whether politicians are now ready to take such a step,” the economist said.
He stressed that Ukrainians have been volunteering and donating a lot since the first days of the full-scale invasion, although this should be done exclusively by the state. After all, tax increases are in fact the same “official donations”.
“We have a completely calm attitude towards volunteering and donations, but we need to understand that volunteering occurs when the state fails to fulfil its functions. We understand that it is not donations that should be there, but the payment of taxes, and the state should distribute funds depending on the need,” said Oleg Pendzin.
Business community’s opinion on tax increases
Despite these opinions of experts and MPs, the business community expressed dissatisfaction with the tax increase, which is why the government held a meeting with business representatives yesterday within the framework of the Council for Business Support.
“Our main hypothesis and fear is that the tax increase will lead to the shadowing of the economy and the destruction of small and medium-sized businesses, and will ultimately have a very short-term effect, after which taxes will be collected even less than now,” Oleg Gorokhovsky, one of the co-founders of monobank, who attended the meeting, wrote on his Telegram channel.
At the same time, not all entrepreneurs were invited to discuss the upcoming tax increase: in an exclusive commentary to 
, Andriy Dligach, a scientist, futurist, founder and CEO of Advanter Group and international business community Board, said that he did not attend the meeting with the authorities.
“As the chairman of a coalition of business communities, which includes 97 business associations, I have to say that the authorities did not meet with business representatives, to whom I de facto belong,.
Obviously, this meeting was held with those with whom the authorities are comfortable and interested in talking,” he said and stressed that business no longer asks for, but demands, a dialogue with the authorities.
“We demand that the authorities establish a dialogue. After Russia’s military aggression, our state itself is a risk factor for Ukrainian business. It so happened that instead of building normal relations, the state is constantly changing the rules of the game, and retroactively, and its actions are contributing to the deterioration of the business environment in Ukraine. The result is obvious. Ukrainian business is quite globalised and is starting to invest outside the country. Business is actually being squeezed out of Ukraine due to the actions of the current government,” said Andriy Dligach.
According to the founder of the international business community Board, expenditures do need to grow, but raising taxes as proposed by the government is not the answer.
“What has the government done to optimise these expenditures, including the military? Has enough been done to make military procurement free of corruption? Why is it that Ukrainian business, which can produce drones and many weapons, is chronically deprived of access to procurement, while the state overpays two to three times for imports? Why does this go on? Why hasn’t the state started paying our defenders in an economically viable way? A part of the payments has been transferred to government securities, shares in state-owned banks and state resources, which we have in abundance. In this way, the economic problem situation can be resolved, gambling addiction can be reduced and pressure on the exchange rate can be reduced,” Dligach said.
In his opinion, the proposed increase in the military tax will result in Ukraine having 45% of wages in the shadow instead of 34%.
“Raising VAT will lead to a 30% increase in VAT evasion schemes. This applies to many taxes. Of course, there are taxes that are quite rational. These are the increase in excise taxes and others. There are taxes that make sense to raise now. But there is an alternative to raising taxes,” he said.
Andriy Dligach believes that by raising all the taxes currently proposed by the Ministry of Finance, Ukraine will receive 320 billion in budget revenues next year. And through economic reforms, it would receive more than one trillion hryvnias.
“We should already be implementing economic booking, which will provide about UAH 200 billion of economic effect through the de-shadowing of salaries. We also need to implement customs reform, which will bring in between 100 and 200 billion, depending on the model. The next step is to reform tax administration, which will bring between 100 and 150 billion hryvnias of effect, and so on. So the question here is why, instead of resorting to systemic changes, we are once again offered solutions that kill the Ukrainian economy and reduce the investment attractiveness of Ukraine?” the expert said.
Will the tax increase lead to impoverishment of the population
According to Andriy Dligach, the government’s actions to raise taxes will have a negative impact on the wallets of all Ukrainians.
“Half of the population is involved in business in one way or another. Accordingly, when business suffers, half of the population automatically suffers. Indeed, raising VAT or turnover tax will lead to inflationary processes. All of this will lead to higher prices and impoverishment of the population. The only way for us to increase the state budget revenues and make sure that Ukrainians get better jobs is to carry out economic reforms,” said Andriy Dligach.
MP Oleksiy Honcharenko shares the same opinion. In an exclusive comment to K.
he stressed that during the war, the government should do everything possible to ensure that people can earn money and have the opportunity to work normally.
“I have a feeling that the government wants sole proprietorships to close down completely. I was recently approached by a woman who owns a small shop in the village and works officially. But she says that the tax increase will destroy her business, because a village shop does not make millions in profit. “It’s hard for everyone now, and when you impose even higher taxes on people who are barely getting by, it will simply sink them. The government is acting in the most ill-considered way possible,” the politician stressed.
What taxes are likely to be introduced and increased from September this year
- increasing the military tax rate to the income defined in Article 163 of the Tax Code to 5% (currently 1.5%).
- establishing the obligation for legal entities to pay the military fee in the amount of 1% of income from any activity for corporate income tax payers and single tax payers of groups 3 and 4;
- establishing the obligation to pay a military fee of 5% based on two minimum wages per month by individual entrepreneurs and single tax payers of the first, second and fourth groups;
- establishing the obligation to pay the military fee in the amount of 1% of the income of individual entrepreneurs by single tax payers of the third group;
- establishing the obligation to pay a military tax of 5% of the value of precious metals by legal entities and individuals who purchase precious metals from banks;
- establishing the obligation to pay a military duty of 30% of the value of jewellery sold by enterprises, institutions and organisations and individual entrepreneurs engaged in retail trade in gold, platinum and precious stones (including those made from tolling);
- establishing the obligation to pay military duty in the amount of 15% of the value of acquired movable property by enterprises, institutions and organisations, individuals who acquire ownership of passenger cars subject to the first state registration in Ukraine by the territorial bodies of the Ministry of Internal Affairs, except in cases of providing passenger cars to persons with disabilities in accordance with the law;
- establishing the obligation to pay military duty in the amount of 5% of the income from the sale of real estate by individuals who sold one real estate object during the reporting tax year;
- establishing the obligation to pay a military duty of 5% by electronic communications service providers that provide mobile communications services, paid by end users of such services;
- establishing the obligation to make monthly advance payments of corporate income tax by taxpayers engaged in retail fuel trade in the amount of 0.5 of the minimum wage established by law as of 1 January of the reporting (tax) year, per 1 cubic metre of tanks for storing petrol, diesel fuel and liquefied gas located at the place of retail fuel trade, included in the Unified Register of Fuel Licensees and Places of Fuel Circulation;
- establishing a specific excise tax rate of EUR 0.1 per 1 litre of fuel.
Author – Aliona Kaplina