Ukraine's budget lacks money for defence: government working on tax increase

Due to the increase in military expenses, the Ukrainian government is discussing raising the rates of military personal income tax and value-added tax (VAT).

Source: Forbes Ukraine, citing sources in the government and the Verkhovna Rada

Details: Thus, Finance Minister Serhii Marchenko estimated the budget gap due to military spending at US$5 billion. At the same time, other sources estimated the budget needs at 400-500 billion hryvnias (about US$10-12 billion).

"According to three MPs, the government is planning to raise the military tax rate from 1.5% to 5%. Two MPs from the financial and economic bloc suggest that a similar tax rate of 5% may be introduced for individual entrepreneurs," Forbes said.

At the same time, there are still discussions about the level of VAT increase. The likely increase is 2-3%.

"The changes are not final, the discussion on them is still ongoing," Forbes notes.

Forbes adds that an increase in the military tax rate from 1.5% to 5% for employees (excluding the possible introduction of a military tax for individual entrepreneurs) could bring an additional 90-100 billion hryvnias (US$2.2-2.4 billion) a year to the budget.

A 1% increase in the VAT rate would generate about 40 billion hryvnias (US$997 million) in additional annual revenues. A 2-3% increase in the VAT rate could increase budget revenues by 70-120 billion hryvnias (US$1.7-2.9 billion).

The relevant draft law may be submitted to the Parliament in late June or early July. If the document is adopted quickly, the updated rates will come into effect no earlier than September.

Background:

• This year, Ukraine needs about US$3 billion in external financing every month.
• Ukraine needs external financing to cover the state budget deficit in 2024, which is about US$37.3 billion. At the same time, Ukraine needs an additional US$9.5 billion to finance the priority recovery needs.

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