The authorities are preparing to “mobilize” the economy: for whom taxes will increase and by how much

The discussion on raising taxes has been going on in Ukraine for several months now. Of course, this is not a popular step on the part of the authorities, but, on the other hand, there is a huge hole in the state budget for financing defense capabilities. Therefore, the government has already developed a number of changes to the tax code.

According to various forecasts, parliamentarians may vote on the proposed tax changes as early as August, so that in the fall most of the new taxes will already begin to fill the budget. RegioNews analyzed what changes are being proposed and how this will affect ordinary Ukrainians.

Officials unanimously declare that the state budget needs an additional almost 500 billion UAH to finance the army, and these funds cannot be taken from financial assistance provided by international partners. That is, the burden of Ukraine’s defense capability—salaries for the military and the maintenance of the army in general—must be resolved exclusively at its own expense. Therefore, the government notes that there is no other choice but to revise tax policy to fill the state budget and, as a result, strengthen protection from the aggressor. The corresponding government bill on changes to the tax code has already been sent to parliament. Next, let's look at what changes are proposed.

Military gathering

Some of the biggest innovations are offered in military training. Currently, there is a military tax of 1.5% on the income of individuals, introduced back in 2014. Now the government proposes to immediately increase this fee to 5%.

In addition, it is proposed to introduce a military tax for legal entities, as well as individual entrepreneurs (PE), who are in the third tax group - earning no more than 8 million 285 thousand 700 UAH per year. Consequently, the developers of the bill propose to introduce a military tax in the amount of 1% of the income of both legal entities and individual entrepreneurs of group 3.

However, individual entrepreneurs of groups 1, 2 and 4 also want to oblige them to pay a military tax. Currently, it is proposed that individual entrepreneurs of groups 1, 2 and 4 pay a single military tax at a rate of 5% of the amount of two minimum wages as of January 1 of the reporting year. Now this is a little more than 700 UAH, which such individual entrepreneurs will have to pay monthly if the changes are adopted.

When buying and selling banking metals, say, gold or silver, they also propose to introduce a military tax of 5% of the cost of the operation, but for the sale of any jewelry they plan to immediately charge 30% for the needs of the army.

If changes to the tax code are nevertheless adopted, then a 15% military tax will be introduced when purchasing a new car. Of course, all this will fall on the shoulders of those who buy a new car, and therefore it is logical that the cost of new cars will jump in value by at least 15%. At the same time, Finance Minister Sergei Marchenko has already responded to the dissatisfaction of automotive market specialists with such possible innovations, saying that during a war, buying a new car is not a critical need. They say that there is an acute security issue in the country, a house is on fire, and someone says that there is no need to buy extinguishing agents, but it is better to buy a new car.

“Buy a new car without any problems, but additionally support the Armed Forces,” Marchenko noted.

The introduction of a military tax may also affect the real estate market. The government proposes to collect 5% for the needs of the army from the sale of real estate by an individual, but this will be if during one tax year this individual has already sold an apartment, house, garage or some other piece of real estate once.

The bill also talks about introducing a 5% military tax on payments by Ukrainians for mobile communication services. In this case, it can also be assumed that the price of such communication will increase for the end consumer.

VAT will not be touched yet

Back in the spring of this year, there was a lot of talk about the possibility of increasing VAT (value added tax). If now it is 20%, then there were thoughts of increasing it to 22-23%. In an interview with the media, Finance Minister Sergei Marchenko said that the issue of increasing VAT was discussed in the government for a long time, and there were many discussions on this matter, but in the end they agreed that this was an unpopular step. According to Marchenko, if VAT were raised, prices for all goods in the country would automatically increase.

Now the value added tax is “hardwired” into all goods and services. Relatively speaking, if an ordinary Ukrainian purchased food products in a store for 1000 UAH, then 200 UAH of this amount is VAT that goes to the state budget. In general, VAT is called almost a budget-forming tax. According to the head of the budget committee of the Verkhovna Rada, Roksolana Podlasa, this year alone, import and domestic VAT is planned to bring almost 800 billion UAH to the state budget. At the same time, she also stated that in the future the authorities will return to the possibility of increasing VAT, and its increase by 2-4% will have a very tangible effect on the budget. Simple mathematics shows that if you increase VAT by 4%, this will additionally bring more than 30 billion UAH to the budget.

Tax on sweet water and parcels from abroad

The issue of introducing a so-called excise tax on sweet water is also being actively discussed. Moreover, recently the Verkhovna Rada of Ukraine Committee on Finance, Tax and Customs Policy has already supported a bill on introducing a tax on sweet water starting next year. It is proposed to classify waters, including mineral and carbonated waters, with added sugar or other sweetening or flavoring substances as excisable goods and set a specific tax rate of 0.1 euros per 1 liter of drink. However, MP Yaroslav Zheleznyak has already stated that he does not really understand how all this can be administered normally. At the same time, he added that if such an excise tax is introduced, the cost of one liter of the same lemonade will increase by 4 UAH. But the chairman of the committee on finance, tax and customs policy, Daniil Getmantsev, calls the introduction of an excise tax on sweet water a concern for Ukrainians. They say that this legislative initiative is designed to help protect people's health by introducing additional tax mechanisms aimed at reducing the population's consumption of sugar and sweeteners.

And finally, about parcels from abroad. The government wants to reduce the duty-free limit on parcels from 150 euros to 45 euros. According to Finance Minister Sergei Marchenko, in Ukraine almost all online commerce operates in the “shadow”, because, he emphasizes, a lot of goods are brought into the country within the duty-free limit on parcels of 150 euros. It gets to the point that some large companies even break their shipments of goods into small ones in order to meet the duty-free limit. If, for example, an ordinary Ukrainian orders, say, shoes abroad, then if the cost of the parcel is up to 150 euros, he does not pay VAT, and if the parcel is valued at 200 euros, then the “excess” 50 euros from the limit of 150 euros is already will be subject to 20% VAT. If the government's proposals are adopted by parliament, all parcels from abroad costing more than 45 euros will be charged VAT of 20%. Although the same Roksolana Podlasa predicts that such changes will be difficult to vote for, because it causes a lot of negativity.

How much extra money will be in the budget from tax increases?

According to government estimates, increasing the military levy and introducing it in cases where it is currently absent will bring an additional almost 110 billion UAH to the state budget. In fact, half of this amount - more than UAH 50 billion - will be provided by the introduction of a military tax in the amount of 1% of turnover for legal entities and individual entrepreneurs of group 3. But increasing the military tax from 1.5 to 5% for individuals can bring an additional more than 45 billion UAH.

Another more than 10 billion UAH could come from the introduction of a 15 percent military tax on the sale of new cars, but officials expect an additional almost 1 billion UAH from the military tax on mobile communication services.

Why business is against tax increases

Many business representatives began to criticize the government initiative to raise taxes. They say that Ukraine has a fairly deep-rooted culture of tax evasion, and increasing them will lead to the fact that even more small and medium-sized businesses may start working in the shadows. Therefore, raising taxes may not lead to additional filling of the budget, but vice versa. For example, Alexander Konotopsky, the founder of a large enterprise that produces security systems, advises reducing taxes in general, but teaching everyone to pay them without exception. He generally considers the introduction of a military tax for individual entrepreneurs to be an encroachment on the future development of startups in Ukraine.

At the same time, the co-founder of a company producing refrigeration equipment, Igor Gumenny, believes that the entire burden of raising taxes will fall on “white” businesses, and “shadow businesses”, just as they did not pay taxes, will not do so. In addition, he predicts an increase in prices for goods and services due to an increase in the tax burden. In general, many entrepreneurs agree that raising taxes will ultimately have the opposite effect than the increase in the tax burden expected by the Cabinet of Ministers.