President of Ukraine Volodymyr Zelensky signed a law on tax increases adopted by the Verkhovna Rada. The main point of the law is to increase the military levy on all incomes of Ukrainians from 1.5% to 5% this year and next. As Prime Minister Denys Shmyhal stated on November 27, this law will come into force on December 1. According to him, this law is one of the key requirements of our creditors and is important for filling all defense expenditure items with funds this year and next.
The Finance Committee of the Rada has already supported a norm that removes the tax increase for individual entrepreneurs retroactively, from October 1, and postpones it to January 1. This norm still needs to be approved by parliament. The government proposed to increase taxes in July 2024 due to the need to increase defense spending by 500 billion hryvnias. The government’s initial proposals were quite strict and provided for tax increases in various areas. Then, the draft of the head of the tax committee, Danylo Getmantsev, was taken as a basis. The Rada adopted this law on October 10.
The total amount of tax increases in 2024 will be about 8 billion hryvnias. This will be due to an increase in taxes on citizens and individual entrepreneurs. Next year, the main resource will also be the income of the population, in addition, the increased tax will be paid by banks.
The law provides for an increase in the military levy on all incomes of citizens from 1.5% to 5%. According to the calculations of the Ministry of Finance, if the law came into force on October 1, this would give the budget an additional 27.3 billion hryvnias in 2024. However, the amount will decrease, since the law will come into force on December 1.
In 2025, due to the increase in taxes, budget revenues will increase by 141 billion hryvnias. Increasing the military levy rate from 1.5% to 5% will give 107.7 billion hryvnias; establishment of a military levy for taxpayers on a simplified taxation system, namely, for individual entrepreneurs of groups I, II, III and IV – 13.7 billion hryvnias, legal entities of group III – 929 million hryvnias. If the current personal income tax rate is 19.5% (18% plus 1.5% military levy), then now it will increase to 23%.
According to the law, “the income of military levy payers accrued as a result of tax periods before the entry into force of this law is taxed at the military levy rate that was in effect before the entry into force of this law, regardless of the date of their actual payment (grant)”.
At the same time, the rate of 1.5% remains for military personnel and employees of the Armed Forces of Ukraine, the Security Service of Ukraine, the Foreign Intelligence Service, the Main Intelligence Directorate of the Ministry of Defense, the National Guard, the State Border Service, the State Protection Department, the State Service for Special Communications and Information Protection, and the State Special Transport Service.
It is also envisaged to establish a military levy for individual entrepreneurs – single tax payers of groups I, II and IV at the level of 10% of the minimum wage (i.e. 800 hryvnias per month). The budget will receive 1.7 billion hryvnias in 2024 and 7.8 billion hryvnias in 2025.
Establishing a military levy in the amount of 1% of the income of single tax payers of group III. This will give 6.8 billion hryvnias in 2025. From January 1, 2025, monthly reporting on the Unified Social Contribution (USC), Personal Income Tax (PIT) and Military Conscription (MCC) will be introduced for all tax agents. By the end of 2024, the corresponding tax reporting will be submitted quarterly. This is necessary for “economic reservation”.
The law provides for setting the income tax rate for non-bank financial institutions (except insurers) at 25%. Additionally, the budget will receive 157.7 million hryvnias in 2025. Monthly advance payments of income tax for enterprises engaged in fuel retail trade have been established. This will give 4.3 billion hryvnias in 2025.
The law provides for setting the income tax rate for banks for 2024 at 50%. This will give 27 billion hryvnias in 2025.
The minimum tax liability for agricultural producers is being increased. The minimum amount to be paid cannot be less than 700 hryvnias per hectare of land. For land plots where the share of arable land is at least 50%, it is 1,400 hryvnias per hectare.
In addition, taxable income for 2024 and 2025 does not include income in the form of state cash assistance (cashback) received within the framework of the implementation of the “Made in Ukraine” pilot project. Recall that, according to a survey by the Razumkov Center, only 4.5% of Ukrainians believe that tax increases should be implemented promptly in order to ensure maximum revenues to the state budget in a short period of time.
A quarter of those surveyed (25.5%) believe that tax increases should be implemented, but gradually, in order to balance the state’s need for additional revenues and the limited purchasing power of the population. Only 4.5% of Ukrainians believe that tax increases should be implemented promptly to ensure maximum revenue for the state budget.
