Verkhovna Rada passes law on tax increase

On October 10, the Verkhovna Rada of Ukraine adopted in the second reading and in general the draft law No. 11416-d, which provides for a tax increase. The decision was voted for by 247 MPs.

This was announced by Yaroslav Zheleznyak, MP, Deputy Chairman of the Verkhovna Rada Committee on Tax Policy.

The draft law provides, in particular:

• Starting from October 1, 2024, the military tax on the salaries of all individuals (including those working in the Diia.City mode) will increase from 1.5% to 5%. Thus, the income of citizens will be taxed retrospectively (the rate of 1.5% will remain for military personnel);.
• Starting from January 1, 2025, the military tax on other personal income (except for salaries) will also increase from 1.5% to 5%.
• For individual entrepreneurs of groups 1, 2, and 4, a military tax will be introduced in the amount of 10% of the minimum wage set as of the 1st day of the reporting month. Starting from October 2024, this will amount to UAH 800 per month.
• Individual entrepreneurs of the 3rd group will pay 1% of their income in the form of a military fee;
  50% of the bank income tax for 2024. As banks have already paid taxes at the old rate, the new tax will be applied retrospectively;
• Starting January 1, 2025, the income tax for non-banking institutions (except insurance companies) will increase from 18% to 25%;
• exemption of “national cashback” from taxation in 2024-2025;
• Monthly advance payments of income tax will be introduced for gas stations: UAH 30, 45 or 60 thousand for each station, depending on its type. The amount of overpayments will not be taken into account to reduce tax liabilities in the future.
• An advance payment of income tax will be introduced for exchange offices: 700 euros for each exchange office in Kyiv, 600 euros in cities with a population of more than 50 thousand, and 200 euros for other settlements.
• Minimum land tax (MLT) of UAH 700 and UAH 1400 per hectare.
• Mining royalties for crushed stone, granite, and sand to be at least $5 per ton.
• Introduction of monthly personal income tax reporting (to launch “economic booking”).

At the same time, according to Zheleznyak, the Verkhovna Rada rejected amendment No. 988, supported by the relevant committee, on who is a payer of the increased military fee and what exactly is the object of taxation. The MP predicts that the law will probably have to be re-voted.

The government expects these tax changes to bring an additional UAH 58 billion to the budget this year and UAH 137 billion in 2025.

Experts believe that the adoption of the draft law No. 11416-d could lead to many negative consequences for the Ukrainian economy. The main ones are a reduction in economic activity, increased fiscal pressure on white businesses, expansion of the shadow sector, including black and gray employment, etc.