The VAT increase could have raised the same amount of money for the state budget as the government expects to get from the increase in business taxes and the military tax. The adopted law introduces changes ‘retroactively’ and creates conflicts, MP Yaroslav Zheleznyak, first deputy chairman of the Committee on Finance, Taxation and Customs Policy, said in the Adult View programme on LB live.
According to him, there was a rush to pass this bill so that it could be signed by the president as soon as possible, which would make it effective. But as a result, the document has not been signed for more than 20 days.
According to Zheleznyak, there is no logical answer as to why it was decided to raise the military tax rather than VAT.
"The Ministry of Finance, Hetmantsev, the committee, the IMF, embassies that help us with macro-financial assistance, business associations - everyone was in favour of raising VAT," the MP said.
Zheleznyak added that the draft law will not destroy Ukrainian business, but it may harm white business.
"It will make it even less competitive compared to the shadow business or businesses that pay black wages," the MP said.
He added that this increase in payroll taxes would lead to even more shadowing.
- On 10 October, the Verkhovna Rada passed a draft law on tax increases. Starting from 1 October, the military tax on salaries of all individuals (including those working in the Diia.City mode) will increase from 1.5% to 5%. This means that individuals' income will be taxed retrospectively. From 1 January 2025, the military tax on other income (except salaries) will increase from 1.5% to 5%. For individual entrepreneurs of groups 1, 2 and 4, the military tax will be 10% of the minimum wage set as of the 1st day of the reporting month. Currently, it is UAH 800 per month. Group 3 individual entrepreneurs will pay 1% of their income in the form of military duty.
Tax increases in Ukraine
- This year, Ukraine lacks UAH 500 billion to finance the army. It is not possible to get these funds from international partners, so it was decided to raise taxes. In July, the government proposed a draft law. The relevant committee developed an alternative one based on the government's proposals, but it lacked two votes to pass.
- The document was passed in the first reading.
- According to the Prime Minister, four steps have been developed to find additional budget revenues. One of them is the so-called economic reservation, or, as the government called it, the "fight or work" principle.
- Finance Minister Serhiy Marchenko said that the tax increase would affect business, but that the government had already exhausted all other options.