Ukraine’s parliament, the Verkhovna Rada, passed a draft law in the second reading that increases taxes, including a hike in the military levy, People’s Deputy Yaroslav Zheleznyak reported via Telegram on Thursday.
Several amendments were adopted during the second reading of draft law No. 11416d – which was supported by 247 deputies – including one that keeps the military levy at 1.5% for military personnel while raising it from 1.5% to 5% for all other citizens.
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The bill also introduces a military levy for individual entrepreneurs and requires gas stations to make advance income tax payments. Additionally, banks will now be subject to a 50% income tax rate.
The military tax on personal income, including salaries, will increase from 1.5% to 5%, though this change will be implemented in phases.
For employers, this means they will pay an additional 3.5 percentage points in taxes on employees’ official salaries, but the personal income tax rate will remain at 18%. The single social contribution of 22%, paid by employers, will also remain unchanged.
The new military tax rate will also apply to citizens’ interest income from bank deposits. Previously taxed at 19.5%, this income will now be subject to a 23% tax.
However, the military tax rate for service members and employees of the following sectors remains at 1.5%:
- Armed Forces of Ukraine (AFU)
- Security Service of Ukraine (SBU)
- Foreign Intelligence Service
- Main Intelligence Directorate of the Ministry of Defense (HUR)
- National Guard
- State Border Service
- Department of State Security
- State Service of Special Communications
- State Special Transport Service.
Some provisions of the new law will take effect retroactively from Oct. 1.
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The Verkhovna Rada initially approved the draft law on Sept. 17.
According to RBC-Ukraine, the Ministry of Finance estimates that the tax increases starting in October will generate Hr 27.3 billion ($.67 billion) in 2024 and Hr 107.7 billion ($2.63 billion) in 2025.
Taras Marshalok, an analyst at the Kyiv School of Economics’ Center for the Analysis of Public Finances, told RBC-Ukraine that this tax hike would place an additional burden on those receiving legal income and profits. Meanwhile, those working in the “shadow” economy or receiving undeclared wages may not feel the effects.
Marshalok added that the government needs to implement effective measures to combat tax evasion and abuses in tax administration.
He also said that the adoption of such a law in the fourth quarter violates the principles of stability and predictability in taxation, which stipulate that tax changes should be enacted at least six months before taking effect.
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