Historic tax increase. Zelensky signed

The President of Ukraine, Vladimir Zelensky, signed on Thursday, November 28, the law No. 11416-d on the tax increase.

There will be a historic increase in taxes in Ukraine. The President of Ukraine, Vladimir Zelensky, signed the corresponding law. It will be published on November 30, and will take effect on December 1.

Basic provisions of the law

The military tax for all but military personnel was raised from 1.5% to 5%. Individual entrepreneurs of groups I, II and IV will pay 10% of the minimum wage. For group III individual entrepreneurs, the tax will be 1% of income.

A 50% income tax was also introduced for banks and a 25% income tax for financial companies, except for insurance companies. In addition, the law provides for the transition to monthly reporting for income tax or personal income tax (NDFL).

The document also provides for the introduction of advance payments for income tax for gas stations and exchange offices. At the same time, personal income tax will not be applied to income from “national cashback” in 2024-2025.

How it works

According to the head of the Verkhovna Rada Tax Committee, Danil Getmantsev, the military duty at the new rate should be stopped only within 2 days of November.

As for individual entrepreneurs, the parliament promises to make a change according to which obligations in the new rates will be valid for them from January 1, 2025.

Consequences

According to government forecasts, next year the budget should receive 130-140 billion hryvnias from tax increases.

According to estimates of the Institute of State Efficiency, the total business tax burden in Ukraine will increase by 1.5%-2%. Currently, the total business tax burden in Ukraine is 19.5%, according to the international analytical platform Wisevoter. And this fully corresponds to the realities of a country with a developing economy, that is, an emerging market. After the bill is implemented, the tax burden will increase to 21%-21.5%, according to experts. This is much larger than neighboring Romania (14.6%), which, also being a member of the European Union, uses grant programs and investment instruments to attract money to the country. Not to mention Ireland (22.6%), which since 2004 has been made a European offshore zone to attract investors.

“In Ukraine there will be fewer and fewer advantages to attract both external and our domestic investors. And this will further slow down the economy and job creation. This means filling the budget and the well-being of Ukrainians . And exporting manufacturers will begin to think about whether it is worth continuing to do business in Ukraine if the tax conditions will be the same (or even stricter) compared to countries of Eastern Europe and the Baltic this country still has a large amount of unpaid grants and subsidies from the EU, access to cheap money and a relatively safe economic environment,” said economist Alexander Bondarenko.

Representatives of the European Business Association are concerned that changes to the tax law have been introduced before the promised reforms to the financial authorities and reduce the level of corruption in them have been carried out.

In February 2018, TADAT (the Tax Administration Diagnostic Assessment Tool), specialists from the IMF and the World Bank developed a Concept for the reform of the State Fiscal Service of Ukraine and an Action Plan for tax and customs reform, which has not yet been implemented.

“The third year of the war – the tax and customs service is led by officials in acting status, open competitions are suspended, public registers are closed, information about the activities of the services in finance is limited as much as possible to the public sphere. The internal security of the customs service organizes the collection of bribes, the heads of the tax service departments in the territory are arrested for extorting funds from in businesses for issuing licenses and unblocking tax invoices. But all relaxations for businesses in fines and inspections have been cancelled, and greater pressure on taxation is proposed.” said EBA expert Miroslav Laba.

According to him, the potential annual losses of the state budget from the shadow economy are about 400 billion UAH, of which losses from: smuggling – 120-150 billion UAH, counterfeiting and illegal trade – 46 -51 billion UAH, salaries in envelopes – 70-110 billion UAH .

The EBA is convinced that an increase in taxes can lead to the opposite effect from what the officials expected, namely, a reduction in business and a decrease in budget revenues.

The First Deputy Head of the National Bank, Ekaterina Rozhkova, said that the NBU does not support the initiative to increase the tax on bank income to 50%. He believes that the introduction of such a tax may lead to capital problems of the two state-owned banks, which will require billions of dollars in budget expenditures for their further capitalization.