New taxes for Ukrainians: Discover how much businesses and citizens will now have to pay.

Historic Tax Increase: What Has Been Adopted in Parliament

On October 15, 2024, the previously approved draft law No. 11416-d concerning amendments to the Tax Code of Ukraine regarding taxation features during martial law was sent for the signature of the President of Ukraine.

This law outlines amendments to the Tax Code of Ukraine, particularly an increase in taxes. Starting from October 1, 2024, the military tax on personal income will rise from 1.5% to 5% (including those working under the "Diia.City" regime).

Furthermore, starting January 1, 2025, the military tax on other income of citizens (excluding salaries) will also increase from 1.5% to 5%.

It is noteworthy that, according to data from the State Statistics Service, the average salary for the second quarter of 2024 was 20,964 UAH. Therefore, each employee paid an average of 3,773.52 UAH in personal income tax (18%) and 314.46 UAH in military tax (1.5%). With the new rate at the same salary level, the military tax will increase to 1,048.2 UAH.

Additionally, the military tax will not be raised for the monetary compensation of servicemen in the Armed Forces of Ukraine, SBU, GUR, National Guard, and other law enforcement agencies. Servicemen in combat zones are completely exempt from paying the military tax.

However, entrepreneurs operating under the simplified taxation system will become liable for the military tax, whereas previously they only paid it on the salaries of hired employees. This regulation will take effect on October 1, provided that the president signs the adopted bill (as of the morning of October 23, the bill has not been signed by Volodymyr Zelensky).

So, what will change for individual entrepreneurs of groups 1, 2, and 4? For these entrepreneurs, a military tax of 10% of the minimum wage set on the first day of the reporting month has been introduced, meaning the tax will amount to 800 UAH per month starting October 2024.

For individual entrepreneurs of groups 1, 2, and 4, a military tax of 10% of the minimum wage set on the first day of the reporting month has been introduced, which means the tax will amount to 800 UAH per month starting October 2024.

"It is also important to note that individual entrepreneurs of groups 1, 2, and 4 will need to pay the military tax no later than the 20th (inclusive) of the current month. These taxpayers can make advance payments for the entire tax (reporting) period (quarter, year), but no later than the end of the current reporting year. Thus, the introduction of the military tax will significantly increase the tax burden on citizens," adds Andriy Shabelnykov, managing partner of EvrikaLaw.

Tax Burden: Are the Changes Justified?

However, if we are discussing tax increases in the context of a funding deficit for mobilization, then merely altering taxes cannot solve the issue.

If we are discussing tax increases in the context of a funding deficit for mobilization, then merely altering taxes cannot solve the issue.

Oleg Pendzin is supported by Vladimir Dubrovsky, a senior economist at CASE Ukraine and a specialist in the Economic Expert Platform, who believes that tax increases will effectively mean a reduction in citizens' incomes.

"In fact, this means an increase in taxes on citizens' incomes, which translates to a decrease in what workers take home as 'net' pay, and what remains for entrepreneurs. The decrease is, to be fair, not super critical, but still..." — stated the economist.

Dubrovsky emphasizes that in addition to increasing the tax burden on citizens, which should be temporary, results must be obtained from the reforms of the Bureau of Economic Security of Ukraine, customs, and tax administration. These reforms should impact the revenue side of the state treasury.

"These reforms could significantly disrupt the 'shadow' market and bring hundreds of billions into the budget without affecting law-abiding citizens, and even eliminate unfair competition for 'white' businesses. When this occurs, we must not forget to seek the cancellation of any surcharges, and possibly even a reduction in tax rates, primarily on wages," noted Dubrovsky.

Meanwhile, as indicated by research from the Center for Economic Strategy, tax revenues to the state budget in August 2024 amounted to 149.4 billion UAH, representing a 28% increase compared to the same period last year. This growth was driven by corporate income tax (primarily from bank taxation at a rate of 25%), personal income tax (transfer of 'military' personal income tax from local budgets), and excise taxes (better administration). With the adoption of bill No. 11416-d regarding tax changes, the government is expected to anticipate an additional 58 billion UAH in 2024 and an additional 137 billion in the state budget for 2025.