Taxes will be raised in Ukraine: what should businesses and ordinary citizens prepare for?

Ukrainians' taxes will be recalculated in the coming weeks. Without additional resources, problems may arise with financing the army. So far, the changes involve an increase in the military duty rate, as well as the introduction of new rules for individual entrepreneurs. The corresponding “resource” bill 11416-d was adopted in the first reading on September 17. The first attempt was unsuccessful, but during the first reading again the required number of votes was found. The second reading is ahead.

About how taxes will be increased and what next step you need to prepare for

How and to whom taxes will soon be increased: how much individual entrepreneurs and every Ukrainian will pay

In Ukraine, a bill to increase taxes to finance the army had to be voted on again. On September 17, it was adopted in the first reading. Although a few weeks ago this document was failed in the session hall. A few votes were missing, and military salaries were at risk. A few months earlier, Prime Minister Denis Shmygal stated within the walls of the Rada that the issue of revising taxes was not being considered at all. Although already then a model of a government bill on raising taxes and the details of this document were developed

Ukrainians take part in volunteer initiatives, collect billions of hryvnia to help the army, but are not ready to pay more taxes for the same army. And there are many reasons for this: from distrust of the authorities to the lack of tax culture.

But taxes will still have to be raised. “This is not even cynicism, this is either bipolar disorder, or (more likely) a complete disregard for the mental abilities of their own voters, to whom they are simultaneously trying to “sell” mutually exclusive stories about popular support for the army and the failure of an unpopular tax increase,” commented the failed vote in interview with OBOZ.UA, Chairman of the Committee on Finance, Tax and Customs Policy Daniil Getmantsev.

Consequently, the tax increase is provided in the following amount:

• military duty will increase from 1.5 to 5%. For example, if now with an income of 20 thousand UAH the military tax is paid in the amount of 300 UAH, then after the increase you will have to pay 1000 UAH;
• single tax payers in the third group will pay a military tax of 1% (they do not pay now). That is, from an income of 30 thousand UAH, an individual entrepreneur of the third group will pay 300 UAH;
• Individual entrepreneurs on the first, second and fourth (farmers) forms of the single tax will pay a military tax in the amount of 10% of the minimum wage. Today it is 800 UAH;
• banks will pay a profit tax of 50%. This is explained by the fact that banks were able to obtain virtually abnormal income through government bonds. Non-bank financial institutions will pay 25% income tax.

The Cabinet of Ministers will be tasked with developing a bill to amend the Budget Code of Ukraine regarding the transfer of military taxes to the special fund of the State Budget with a view to directing them to the needs of financial support for the security and defense sector.

Thus, an ordinary Ukrainian with a salary of 30 thousand UAH, after an increase in military duty, will pay instead of 450 UAH (1.5%) 1500 UAH (this is already 5%).

Individual entrepreneurs of the third group with a monthly income of 30 thousand UAH will pay 300 UAH more (they did not pay military duty, but will pay 1%).

Individual entrepreneurs of the second group with an income of 30 thousand UAH will pay 800 UAH more monthly (they did not pay military duty, but will pay 10% of the minimum wage).

This is not the last tax increase. The biggest steps ahead

At the beginning of the year, the National Revenue Strategy was published in Ukraine (it was approved by the government at the end of December last year). The document was developed at the request of the IMF and agreed upon with international partners (and not only in the Fund).

But the experience of adopting a resource bill (i.e., an attempt at adoption) proves: it is quite possible that the National Strategy will remain embodied solely on paper. As OBOZ.UA learned, now specific proposals and bills that would implement the strategy are not even being developed.

Among the main tax changes that the government has committed to implement in the National Revenue Strategy are:

• Property tax changes

Before the war, 8.7% of local budgets were formed from taxes on apartments and houses whose area exceeds the standard. We are talking about apartments from 60 square meters and houses from 120 square meters.

The current tax assessment system raises many questions. This does not take into account the cost of housing or location. For example, a house in the center of the capital with an area of ​​200 square meters can cost hundreds of thousands of dollars. And a building of the same area in Pavlograd, Dnepropetrovsk region, can cost hundreds of thousands of hryvnia. The difference in prices is tens of times. However, the tax may be charged the same.

According to the strategy, the tax should be reformed. The estimated value will be taken into account. “However, today there are a number of limiting factors for introducing a new taxation model. So, now: the State Register of Rights to Real Estate has not been fully formed; there is no institute for real estate valuation; there is no body entrusted with the functions of assessing real estate for tax purposes,” the strategy says.

The plans provide that during 2024-2025 an act will be approved that defines the legal basis and mechanism for assessing property. During 2026-2027: assessment of real estate objects contained in the State Register of Rights to Real Estate. During 2027: filling the information base regarding the estimated value. During 2027-2028: development of a model for taxation of real estate.

New personal income tax and single tax reform

The personal income tax in Ukraine is the same for everyone – 18%. This tax was introduced in 2016 due to the large number of schemes. At that time, a progressive scale was in effect: the less Ukrainians earned, the lower the tax rate they paid. Back then, income concealment schemes were widely used to take advantage of low rates.

After the changes, a progressive scale should be introduced in Ukraine, but before that the administration will be improved. “A serious problem for the effective taxation of hired labor is created by the simplified taxation system currently in force in Ukraine, since many taxpayers consider it attractive to choose the status of self-employed persons for their employees,” says the National Strategy.

As part of the reform they promise:

• reinstating a progressive rate scale with one or two significantly higher personal income tax rates for a portion of the income of high-income earners;
• replacing the minimum tax-free income with the provision of personal social assistance to low-income individuals;
• revision of personal income tax benefits, special tax conditions;
• introduction of an effective incentive system of tax deductions (refunds of taxes paid);
• providing regulatory authorities with access to banking information on the movement of funds in taxpayers' accounts.

The rules for individual entrepreneurs will change radically. This will happen gradually (over at least three years). Legal entities will be prohibited from using the single tax; in the third group, the single tax will gradually increase from 5% to 18%. The first and second groups of the single tax will be combined, and the rate will range from 3 to 17% depending on the type of activity.

Business as usual is also expected to change. Thus, VAT benefits will be gradually abolished (for example, for farmers). They will consider introducing an excise tax on sugary drinks. After the war, the rates on environmental emissions will be raised. The property tax will also be revised: they want to link it to the assessed value of real estate.

Ukraine will have to change the Tax Code, the rules for applying personal income tax and radically reduce the simplified system and single tax. Even if there are not enough votes in the Rada for this now, this will have to be done for further European integration and the opportunity to become a full member of the EU.