The increase in taxes in Ukraine has already been called historic. It will affect both citizens and businesses.
Ukrainian President Volodymyr Zelensky signed a law on a record increase in taxes. So Ukrainians will have to pay not 1.5%, but 5% of the military tax. Business will also “cost a pretty penny.”
However, such changes will not affect everyone. When the innovations will come into effect, what and how much each Ukrainian and business will pay for, read in the exclusive TSN.ua.
Law on increasing taxes
Ukrainian President Volodymyr Zelensky signed a law on increasing taxes on November 28. New changes to tax legislation will come into force in Ukraine, implying an increase in taxes for individuals and entrepreneurs. In particular, the increase in military tax will increase from one and a half to five percent.
The law on the historic increase in taxes was supposed to come into force today, November 29. The text of the law was even published in the online version of the parliamentary newspaper “Voice of Ukraine”. However, the document was then removed. Later, Danylo Getmantsev, Chairman of the Verkhovna Rada Committee on Finance, Tax and Customs Policy, announced that the law would come into force on December 1.
Main changes:
- The military tax rate will increase from 1.5% to 5% for all citizens' income. This decision is part of the government's efforts to finance defense spending.
- The income tax rate for banks will increase to 50% for 2024.
- For individual entrepreneurs (IE) under the simplified taxation system, a military tax of 1% of income for payers of the single tax of group III will be introduced.
- For groups I, II and IV of sole proprietors, the military tax will be 10% of the minimum wage.
Earlier, TSN Tyzhden host Alla Mazur also explained what would change in the payment of taxes after the bill comes into force.
However, there are a number of citizens in Ukraine who are exempt from paying the military tax. In particular, in July 2022, President Volodymyr Zelensky signed a law according to which military personnel are exempt from this tax, namely:
- Armed Forces of Ukraine;
- National Guard;
- Security Service of Ukraine.
All other categories of citizens will not be exempt from paying military tax.
What preceded the tax increase
Recall that in early October, the Verkhovna Rada adopted the draft law on tax increases as a whole, which has already been called historic.
The second reading of the bill began on October 9 in a practically empty hall – there were about three dozen deputies there. There was no one in the government box during the consideration of the draft.
More than 1,300 amendments were submitted to the bill. Most of them were not taken into account. And on October 10, MPs voted for the bill in the second reading. The decision was supported by 247 parliamentarians, said Yaroslav Zheleznyak, MP from the Golos faction and deputy chairman of the Verkhovna Rada Committee on Tax Policy.
According to him, raising the military tax from 1.5% to 5% will hit Ukrainians quite hard. The MP noted this after the document was voted on in the Rada in the first reading. Then the people's representative was very indignant that taxes could be paid “retroactively”.
And after the bill on raising taxes was voted on in the second reading on October 10, Zheleznyak noted that in fact, the taxation of incomes retroactively will not happen for most taxpayers.
In turn, after the document was signed by the president, the head of the Verkhovna Rada Tax Committee Danylo Hetmantsev said that the military tax at the new rate should be withheld only for 2 days of November. As for individual entrepreneurs, the parliamentarians introduced a corresponding amendment, according to which the obligation to pay military tax at the new rates for them will be in effect from January 1, 2025. But only if the amendment is supported by the Verkhovna Rada next week.
The tax increase is expected to bring about UAH 8 billion in 2024 and UAH 141 billion in 2025.
Pension reform
Recently, the Minister of Social Policy Oksana Zholnovych announced a pension reform that the Verkhovna Rada of Ukraine must adopt. The pension reform may start as early as 2025.
This is stated in the draft law “On the State Budget of Ukraine for 2025”, which the government has finalized and sent for the second reading in parliament. Clause 31 of this draft law instructs the Cabinet of Ministers of Ukraine “to implement measures to introduce pension reform from July 1, 2025.”
The government and parliament have long been talking about the need to introduce a funded pension system in addition to the solidarity system currently in effect in Ukraine. In particular, it is proposed to direct part of the unified social contribution (USC) paid by employers (22% of salary) to the employee's funded account. And to supplement this account with voluntary contributions and contributions from the state. However, there are other options.
Funded pension system
In April 2023, the Verkhovna Rada registered draft law No. 9212 “On funded pension provision” from a large group of deputies. But a year later, in April 2024, it did not receive enough votes in parliament and was returned for revision.
Accordingly, if this draft law is revised and re-submitted to parliament, it will be significantly changed. According to the version on the Verkhovna Rada website, employers are invited to transfer part of the unified social contribution funds of employees who have not yet reached the age of 55 to their savings accounts in the following proportion:
- in the 1st year – 1% (from 22% unified social contribution);
- in the 2nd year — 1.5%;
- in the 3rd year — 2%.
This money becomes the property of the person in whose name the savings account is opened, and the heirs will be able to receive it if the person dies prematurely. It is assumed that the savings accounts “on a parity basis” in the first three years will also be replenished by the state — up to 3% of the average salary.
The bill also stipulates that in the first year of the system's existence, the state will spend about UAH 31 billion on it. The employee will also be able to contribute additional personal money to savings accounts so that his future pension is higher. The funds accumulated in the accounts are planned to be invested so that they increase, covering the rate of inflation.
New bill of the Ministry of Social Policy
In addition, the Ministry of Social Policy has developed its own bill, which the government has not yet submitted to parliament for consideration. According to it, the funded pension system is planned to be introduced from January 1, 2026.
This bill provides for other amounts and sources of contributions to the employees' savings accounts:
- in the 1st year – 1% from the unified social contribution and 1% from the personal income tax (PIT);
- in the 2nd year – 2% from the unified social contribution and 2% from the personal income tax;
- in the 3rd year and thereafter – 3% from the unified social contribution and 3% from the personal income tax.
These funds must be paid by employers for employees until they reach the age of 55. To receive a larger pension, citizens will be able to additionally contribute their own funds to the savings account.
During the first 3 years, these savings accounts are accumulated in a state investment fund, and then the citizen will be able to independently choose where to keep them, including in a non-state fund. However, this bill does not provide for co-financing of citizens' savings accounts by the state.
As a result of the pension reform, in the future, each person will have the opportunity to receive a pension of at least 60% of their earnings, which corresponds to the European level, noted the Minister of Social Policy of Ukraine Oksana Zholnovych.
“This is the level of good European countries. You pay certain contributions to the funded system or to the solidarity system, and when you retire, you are paid approximately 60% of the earnings that you had throughout your life from these savings,” Zholnovych explained.
▶ You can watch the video on the TSN YouTube channel at this link: HISTORIC TAX INCREASE: ZELENSKY SIGNED THE LAW! What will change and when?