55% of companies will not be able to compensate for the increase in the military tax – EBA

If the military tax is increased to 3% or 5%, about 55% of Ukrainian companies will not be able to compensate their employees for this difference. As a result, this will lead to a decrease in real incomes of employees. This is evidenced by the results of an instant survey conducted by the European Business Association (EBA) among its member companies.

The relevant changes may come into force if the draft laws No. 11416-d on amendments to the Tax Code on taxation during martial law and No. 12000 on the state budget of Ukraine for 2025 are adopted.

If the military fee is increased to 3%, 15% of companies are ready to fully compensate the difference at the next salary review, and 14% will partially compensate. Another 7% are considering full compensation in the form of a raise by the end of the year, in which martial law is lifted.

If the military fee is increased to 5%, fewer companies are ready to fully compensate for the decrease in real income of employees – 14%, and 13% will offer partial compensation. 6% are ready to fully compensate with a surcharge until the end of the year when martial law is lifted. Other companies are considering different approaches to compensation or have not yet made a decision.

According to 58% of the surveyed companies, a 22% increase in the unified social tax base from 15 to 20 times the minimum wage (affecting salaries up to UAH 160 thousand) will significantly affect their costs.

In general, the increase in the tax burden, including a potential increase in VAT, military duty, and unified social contribution, will force 56% of the surveyed companies to cut other important expenses necessary for their operation. For 11% of companies, such an increase could lead to a partial reduction in production or operations.

The business community is also very concerned about the idea of raising the VAT rate, as such a step may encourage smuggling and illegal trade instead of fighting the shadow economy. When assessing the impact of a VAT increase, it is important to consider not only the fiscal effect, but also the broader economic consequences for Ukraine in the medium and long term.

As an alternative to a full VAT increase, the business community supports the proposal to apply VAT to imported goods worth up to €500 in accompanied baggage and up to €150 for postal and express deliveries, which are currently exempt from taxation.

The European Business Association once again emphasizes the untapped fiscal potential of the shadow economy. Any tax increase for joint ventures should be preceded by effective measures to combat the shadow economy and tax those parts of the business sector that either do not pay taxes at all or use tax optimization schemes.

As GMK Center reported earlier, the adoption of the draft law No. 11416-d could lead to many negative consequences for the entire Ukrainian economy, including the following

• Reduction of economic activity (as a result of any tax increase).
• Increased fiscal pressure on “white” business.
• Increase in consumer prices and inflation due to businesses passing on new tax costs to final consumers.
• Reduced consumer demand due to lower incomes.
• Expansion of the shadow sector, in particular, “black” and “gray” employment due to increased tax pressure on business.

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