The Verkhovna Rada has voted in the first reading on bill No. 11416-d on tax increases. Experts have told us who will be affected by the tax burden if the law is adopted as a whole.
What does the new law state?
The Verkhovna Rada of Ukraine has approved in the first reading the bill No. 11416-d on increasing taxes by UAH 58 billion until 2024, according to MP Yaroslav Zheleznyak.
The bill states:
- increase in military service from 1.5% to 5%;
- tax increase for the first and second groups of individual entrepreneurs;
- advance payments at gas stations;
- 1% for all forms of individual entrepreneurs of the third group;
- 25% of profits to financial institutions;
- monthly personal income tax return (for financial reserves);
- 50% tax on bank profits in 2024.
241 MPs voted in favour of the bill, 14 against and 28 abstained. The tax changes are expected to increase the state budget by UAH 58 billion in 2024 and by UAH 137 billion in 2025.
As can be seen from the document, the main changes will concern the increase in military service from 1.5% to 5%. The OBOZ publication calculated that a Ukrainian with a salary of 30,000 hryvnias after the increase in military service will pay not 450 hryvnias (1.5%), but 1,500 hryvnias (5%).
Individual entrepreneurs in the third group with an income of UAH 30,000 per month will start paying UAH 300 more thanks to the introduction of a 1% military duty, which was not levied before. Individual entrepreneurs in the second group with the same income will pay UAH 800 more, as they now have to pay military service in the amount of 10% of the minimum wage.
In addition, banks will pay a 50% profit tax. This is explained by the fact that they were able to earn really abnormal income from government bonds. Non-bank financial institutions will pay 25% of income tax.
There is also an interesting point: as Zheleznyak noted, tax increases in Ukraine can be introduced “retroactively.”
“Since the law as a whole will not be adopted until October, its application will be “retroactive” from October 1.”– explained the deputy.
It was impossible to avoid tax increases.
Experts say that tax increases could not be avoided. This money has already been included in the draft state budget for 2025.
“Otherwise there will be a hole and we need money for the army.”– said an investment banker and financial expert in a conversation with Radio Liberty Sergei Fursa.
On the air of Hromadske Radio, Managing Partner of the Investment Programs Office Alexander Bondarenko He also pointed out that there are objective factors that force our government to raise taxes.
“This is a lack of revenues from the state budget and a lack of money for defense needs. We recall what this is related to. In the first half of 2024, we basically financed all defense purchases, i.e. the purchase of shells and salaries of the military with our own money. We finance the army with our taxes. Ukraine’s international partners do not finance it. They sent us little military equipment and we bought it with real money. This led to a state budget deficit in the third and fourth quarters of 2024. And in fact, this has led to taxes increasing now.”said.
However, there were other ways to fill the budget with money. For example, instead of military service, it would be better to increase VAT. This indirect tax is included in the cost of goods and services, so it is paid by everyone: those who work both “in the dark” and “in the dark”.
“It would be better if consumption taxes, i.e. VAT, were increased, because the military tax is paid by those who already work “on the books”, so it is like a punishment for those who work “on the books”. VAT is paid by absolutely everyone, both those who work “on the books” and “on the grey” and “in the dark”. This is a consumption tax, this is a fairer story, the more you consume, the more tax you pay. But unfortunately, “due to populism, politicians are not prepared to do this and that is why we see an increase in military service”.– explains Sergei Fursa.
Who is unhappy with the new bill?
Law No. 11416-d is being criticised by experts, economists, politicians and businessmen. For example, the National Bank has already expressed its dissatisfaction with the increase in the tax on bank profits to 50%. The NBU is planning to announce proposals later this week to increase the banks’ possibilities of covering the budget deficit.
“The risks of such a measure to solve the problem of deficit financing and stable credit growth will outweigh the benefits… The balance is quite fragile and needs support,”– says the head of the NBU Andrey Pyshny.
The co-founder of monobank also spoke harshly Oleg Gorokhovski in your Telegram. He said that Ukrainian businesses had suffered a defeat.
“We can now say with confidence that in the argument between business and government over tax increases, business lost, and as the icing on the cake, active participants in the resistance were granted a 50% tax retroactively.”says.
Fuel companies are also unhappy with the new law. They warn that the new tax law threatens the work of small and medium-sized businesses and could lead to the closure of regional petrol stations.
The Association of Fuel and Energy Businesses writes on its Facebook page that Bill No. 11416 provides for the introduction of advances for petrol stations of up to 80,000 hryvnias for each refuelling.
“The quantity, which is relatively small for the large players in the fuel market, can become critical for many small networks of petrol stations operating in towns far from regional centres. In these settlements, large networks rarely open petrol stations and prefer to concentrate on major roads and densely populated areas, but the needs of the population are met by small petrol stations,”– he pointed out in the Association.
Such a move by lawmakers could lead to the closure of small gas stations that supply fuel to remote communities. And local residents may find themselves in a situation of partial fuel shortage.
But it is not only companies that will be affected. According to the Popular Party deputy Nina YuzhaninaDoctors, teachers, social workers, service workers and other citizens who receive payments from the budget will be affected by the new law. They will pay not 1.5% but 5% of the military tax, even if they already have low salaries, the MP said on the Kyiv 24 TV channel.
At the same time, people with high incomes will not suffer too much, because they already have more. In addition, the private sector will also be under threat, which will hide wages “in the shadows”, that is, the budget will not receive additional taxes from “white” wages. Another negative consequence, voiced by the People’s Party deputy, is the loss of income for companies, which will begin to lose even more workers.
The southerner described in detail how business would be affected. In his opinion, first employers will increase their wage fund to pay the new tax, then their “financial results before taxes” will decrease, and then there will be a corresponding decrease in income tax. That is, the budget will be valid for one month, but then companies will close because they will not be able to bear the burden of taxes.
“What will happen in the near future? What will happen in six months and a year from now, when there will be a large number of insolvent companies whose economic indicators will not be able to hold up?”– said Yuzhanina.
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