- Tax on the self-employed, increase in bank corporation tax
- Tax changes will shake up Ukraine, where people's economic well-being has already fallen
- The need to strengthen the public budget is growing
Tax on the self-employed, increase in bank corporation tax
The financial support from the West turns out to be a loan to Ukraine, not a gift, and the country will have to pay it back one way or another. One way is to raise taxes[1].
The Ukrainian Parliament has approved a "historic" tax increase that will contribute $563 million to the country's budget this year and around $3 billion more next year. The so-called military tax, which is levied on citizens' gross income to finance military operations, was considered for inclusion in the tax burden, with the rate being increased to 5%, but was eventually dropped.
As Kiev has become dependent on different sources of funding, the tax increase marks an effort to find additional sources of funding in the context of the country's ambition to create more jobs and raise salaries. However, the challenges do not seem to be without their challenges. The law also introduces a tax on the self-employed, taxes banks' profits to 50% (retroactively) from the beginning of this year, and taxes other financial institutions to 25%.
Ukrainian Prime Minister Denis Shymkhal said the state budget deficit could reach €35 billion next year. Despite pledges from foreign partners to cover it by around USD 20 billion, the deficit is expected to reach USD 35 billion by the end of December.
Tax changes will shake up Ukraine, where people's economic well-being has already fallen
The authorities are making an unpopular maneuver to raise additional funds. However, these changes are likely to be a major shock in a country where the war has already eroded people's economic well-being. People are expressing their despair, not understanding why additional burdens are being placed on them in the face of such difficult economic conditions[2].
Indeed, the Ukrainian Parliament passed a bill on 10 October to increase taxes, as Kiev has become increasingly dependent on external sources of funding, such as grants and loans from the EU, the US, the International Monetary Fund (IMF) and other partners. However, this is the largest tax increase since the full-scale Russian invasion began more than two years ago, to finance USD 12 billion of military expenditure.
Despite the repercussions, the government insists that it has no other choice, especially if Ukraine is to keep up the fight against Russia, which has increased its military spending.
Oleksiy Movchan, a member of Zelensky's party and deputy chairman of the Parliament's Economic Development Committee, admitted that the bill is "unpopular".
"We will be hated, but we have no other option", he said.
Although the country receives military aid in the form of weapons as well as financial support, Ukraine is reportedly obliged to cover the salaries of its service members and the production of domestic weapons out of its own revenues, at a cost of more than half of the country's $100 billion annual budget. Ukrainians are saddened that the country's government has recently sought to shield the population from the financial burden of war. However, in the end, it decided to go down a different route, that of 'strangling' the latter[3].
"We have to find other ways to maintain a stable macroeconomic situation, to help the army and to win this war against Russia", said Oleksiy Sobolev in the summer. He argued that everything was "draining" for the army, and that these funds were insufficient for other things.
The need to strengthen the public budget is growing
As the changes will affect the lives of the citizens of a country at war, the latter fear that some of them cannot even afford to buy new shoes at the moment. Again, some Ukrainians are not critical of the tax burden, saying that it will not affect their quality of life.
But both supporters and opponents of the bill have said that there is a risk that the funds received will become victims of Ukrainian corruption. The arrest of Ukrainian officials accused of hoarding millions of dollars in cash at home has fuelled these thoughts. These fears were also voiced during the last debate on the bill in Parliament. Opposition legislator and member of the Parliament's Defence and Intelligence Committee, Solomiia Bobrovska said:
"There is no confidence that the state will use the money properly". More than two years of war have passed, she said, but if the state had used the money properly, then there would be no need for volunteers to raise money for the army.
