Ukrainian government considers two options for economic reservation from mobilisation

Two different approaches to the criteria for economic reservation from mobilisation are being considered by the President’s Office and the Initiative Group in the Verkhovna Rada (Ukraine’s parliament). One approach is that a business must pay taxes of at least UAH 30,000-35,000 (US$790-920) from its employees’ salaries; the other is that an additional payment of UAH 20,000 (US$523) per employee per month should be made.

Source: Ukrainska Pravda article entitled "One person fights, four work: Zelenskyy’s office prepares for economic reservation from mobilisation". 

Details: The idea of economic reservation is that companies can reserve their employees in exchange for paying a certain amount of taxes to the budget. This aligns with the existing reservation procedure, under which the government has reserved nearly 500,000 workers in key sectors of the economy.

Rostyslav Shurma, Deputy Head of the President’s Office, told Ukrainska Pravda that he has met with large businesses that say they may have to close because of staff shortages.

Quote from Shurma: "Both business and the public need a fair and transparent mechanism to safeguard their work. We should not be mobilising only those who are genuinely working legally, which makes them visible [to the mobilisation process]. Everyone needs to understand the current situation: either you work for the [state] budget and support the army, or you serve in the military. There is no third option.

We now have a calculation of how much it costs to train, arm and provide financial support for one mobilised individual. The average expenditure at all stages is around UAH 80,000 (US$2,095) per soldier per month. Therefore, 4–5 people in the rear need to work every day to ensure the budget covers these expenses."

Details: Based on the existing calculations, 2 million individuals must be reserved economically in order to call up an additional 500,000 people for military service. 

The criteria for economic reservation are currently being discussed.

The President’s Office and the Initiative Group of MPs, assembled by the chairman of the Parliament’s economic committee, Dmytro Natalukha, have different ideas about who should be included in these hypothetical 2 million people and how much revenue they should generate for the state.

The Office of the President of Ukraine is inclined to organise this process based on the actual amount of taxable income earned. The lower "entry threshold" that would qualify for economic reservation is UAH 30,000-35,000 per month. On that salary, the tax contributions from both the employee and the employer would be up to UAH 18,000 (US$471.50).

Natalukha's group is developing another project based on a special quasi-tax, a sort of military levy. If an employer wants to reserve employees for economic purposes, they must undertake to make a monthly payment of UAH 20,000 per employee. The same option would be offered to active sole traders.

The model being considered by Natalukha's group should allow all additional money to be accumulated as a special fund that is ring-fenced for defence spending.

The President’s Office’s model focuses on the conceptual legalisation of the economy: all personal income taxes, approximately 40% of revenues, will go to local budgets. However, previous experience shows that removing them from there to the army will be quite difficult.

Ukrainska Pravda sources in the Federation of Employers of Ukraine (FEU) say the amounts mentioned – the UAH 35,000 salary and the UAH 20,000 levy from employers – are unrealistic for most of the Federation’s members. FEU members are prepared to pay about UAH 6,000 per employee per month.

Both concepts are similar in terms of the estimated revenues that may be accumulated for the budget. Under the weighted average scenario, the additional revenues could amount to UAH 200 to 350 billion (between US$5.2 and 9.1 million) per year.

Since the Defence Ministry’s entire budget for weapons procurement in 2024 is roughly UAH 270 billion (about US$7 billion), economic reservation could double the weapons budget.

Background:

• On 27 January, the Cabinet of Ministers (the government) adopted a new procedure for the conscription of military personnel which provides for a deferral from mobilisation for 50% or more of the civil servants and employees of strategically important enterprises in the country.
• On 7 February, the Ukrainian parliament voted in favour of government bill No. 10449 on strengthening mobilisation at the first reading. Amendments can be submitted until 21 February, after which there will be a vote at the second reading.

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