Volodymyr Zelenskyy signed a law on raising taxes

The President of Ukraine Volodymyr Zelenskyy signed a law approved by the Verkhovna Rada regarding tax increases. The main innovation of the law is the increase in the military tax on all incomes of Ukrainians from 1.5% to 5% this year and next.

This is reported with reference to the draft law 11416-d on the Rada’s website.

As noted by Prime Minister Denys Shmyhal 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 crucial for ensuring funding for all defence expenses this year and next.

The Financial Committee of the Rada has already supported the norm that removes the increase in taxes for individual entrepreneurs retroactively from October 1 and shifts it to January 1. This norm still needs to be approved by the parliament.

The government proposed to increase taxes in July 2024 due to the need to increase defence spending by 500 billion UAH. The initial proposals from the government were quite harsh and included tax increases in various areas. Ultimately, the draft by the chairman of the tax committee, Danylo Hetmantsev, was taken as a basis. The Rada adopted this law on October 10.

The total amount of tax increases in 2024 will be approximately 8 billion UAH. This will be achieved through increased taxes on citizens and individual entrepreneurs. Next year, the primary resource will also remain the population’s income, and banks will also pay the increased tax.

Increase in Military Tax

The law provides for an increase in the military tax on all citizens’ incomes from 1.5% to 5%. According to estimates by the Ministry of Finance, if the law had taken effect on October 1, it would have added 27.3 billion UAH to the budget in 2024. However, the amount will be reduced since the law will take effect on December 1.

In 2025, due to the tax increases, budget revenues will increase by 141 billion UAH. The increase in the military tax from 1.5% to 5% will provide 107.7 billion UAH; the introduction of military tax for taxpayers on the simplified taxation system, namely, for individual entrepreneurs of groups I, II, III, and IV – 13.7 billion UAH; legal entities of group III – 929 million UAH.

Thus, if the current income tax rate is 19.5% (18% plus 1.5% military tax), it will increase to 23%.

According to the law, "the incomes of military tax payers accrued for the tax periods before the entry into force of this law are taxed at the military tax rate that was in effect before the entry into force of this law, regardless of the actual payment (provision) date."

At the same time, the 1.5% rate remains for servicemen 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 Defence, the National Guard, the State Border Service, the State Protection Administration, the State Service of Special Communications and Information Protection, and the State Special Transport Service.

The law also stipulates the establishment of military tax for individual entrepreneurs – payers of the single tax of groups I, II, and IV at the level of 10% of the minimum wage (i.e., 800 UAH per month). The budget will receive 1.7 billion UAH in 2024 and 7.8 billion UAH in 2025.

A military tax of 1% of the income of taxpayers on the single tax of group III will be introduced. This will ensure 6.8 billion UAH in 2025.

Starting January 1, 2025, monthly reporting for the Unified Social Contribution (ESC), Personal Income Tax (PIT), and Military Tax for all tax agents will be introduced. Until the end of 2024, the corresponding tax reporting will be submitted on a quarterly basis. This is necessary for "economic reservation".

Other Taxes

The law provides for the establishment of a profit tax rate for non-bank financial institutions (except for insurers) at 25%. Additionally, the budget will receive 157.7 million UAH in 2025.

Monthly advance payments on the profit tax for enterprises engaged in retail sales of fuel have been established. This will ensure 4.3 billion UAH in 2025.

The law also sets a profit tax rate for banks at 50% for the year 2024. This will ensure 27 billion UAH in 2025.

For agricultural producers, the minimum tax liability has been increased. The minimum amount to be paid cannot be less than 700 UAH per hectare of land. For land plots where the share of arable land is not less than 50%, it is 1400 UAH per hectare.

Additionally, the income received in the form of state monetary assistance (cashback) under the implementation of the experimental project "Made in Ukraine" is not included in the taxable income for 2024 and 2025.

It should be noted that according to a survey by the Razumkov Center, only 4.5% of Ukrainians believe that tax increases should happen promptly to ensure maximum revenue to the state budget in a short period of time.

One quarter of those surveyed (25.5%) believe that tax increases should be carried out but gradually to balance the state’s need for additional revenue and the limited purchasing power of the population.