Tax increases in Ukraine will take effect on December 1. Who will be affected by these changes?

Starting from December 1, 2024, a tax increase law in Ukraine will come into effect, which has been approved by the Verkhovna Rada and is awaiting the president's signature. This law is part of the state budget for 2025, which the government intends to sign in the coming days. According to Prime Minister Denys Shmyhal, the government has reached out to the President of Ukraine regarding the urgent signing of these important documents.

It was discussed what changes will be made and to whom from December 1. Specifically, the tax increase bill passed by the Verkhovna Rada on October 10 stipulates an increase of the military levy to 5% from the current 1.5%.

What Specifically Will Change

According to the new law, special rates for single tax payers are established:

• For single tax payers of group III, the military levy will be 1% of income.
• For individual entrepreneurs on the single tax of groups I, II, and IV, the military levy rate will be 10% of the minimum wage per month.
• Increase of the military levy from 1.5% to 5%, except for military personnel.
• Military levy of 1% of income for individual entrepreneurs of group III.
• Setting the corporate profit tax rate for non-bank financial institutions at 25%.
• Monthly reporting of personal income tax (for economic booking).
• 50% of the profit tax on banks in 2024.

These changes aim to increase state revenues and support the financing of the security and defense sector.

"Both the law on the state budget for 2025 and the law on amendments to the tax code will be signed in the coming days. This is one of the key requirements of our creditors, the IMF. The government has approached the President's Office regarding the urgent signing of these two bills," the Prime Minister noted during a telethon.

Funding for Defense and Social Programs

According to the draft budget for 2025, UAH 141 billion is expected to be raised from tax increases. A significant portion of this amount will be allocated for defense financing, procurement of equipment and weapons for the Armed Forces of Ukraine, as well as for social programs.

Shmyhal stated that most of the expenditures will be directed towards security and defense needs, as 60% of the budget will go to this sector. The Prime Minister highlighted that more than UAH 2.2 trillion will be spent on the army, which is several times higher than the budget of Ukraine before the full-scale invasion by the Russian Federation.

"These funds will go towards the production and procurement of military equipment, weapons, and also to support our military. In particular, UAH 739 billion is allocated for the production and procurement of equipment, UAH 47 billion for the purchase of drones, and UAH 55 billion for the modernization of the defense industry," Shmyhal explained.

Additionally, significant funds will be directed towards social protection. The government has allocated UAH 421 billion for social programs, including subsidy payments amounting to UAH 42 billion. The budget includes funds for pension indexing that will ensure a decent standard of living for Ukrainians in 2025.

The President's Position and the Importance of the Law

President Volodymyr Zelensky has announced that he will sign the law on the state budget for 2025 on November 28, 2024.

"Today I held a meeting with Prime Minister Denys Shmyhal, Ukraine's Finance Minister Marchenko, and representatives of the Verkhovna Rada. We discussed the main parameters of the state budget for the upcoming year, our financial readiness for this December and for next year. We agreed that tomorrow I will sign the law on the state budget for the next year – immediately after the law is received from the Verkhovna Rada," the President stated in his evening video address.

Zelensky also noted that the signing of these laws is crucial for ensuring financing for all defense needs of the country.

"The main thing is that all financial needs of Ukraine in the near future and for the next year are guaranteed," the President emphasized.

Impact on Business and Citizens

These changes in tax policy will directly affect businesses and citizens. The increase in the military levy will lead to a higher tax burden, especially for small entrepreneurs operating under the single tax regime. However, the government assures that these measures are necessary to ensure the country's security in wartime conditions.

"This decision is not easy, but we must provide our army with all the necessary resources for victory," Shmyhal noted.

It is worth mentioning that despite business protests, the least popular option for the tax increase law is expected to be approved. However, the increase in the military levy, which the head of the tax committee of the Verkhovna Rada, Danilo Hetmantsev, wanted to impose retroactively, will not be implemented.

Additionally, it is important to recall that on September 17, the Verkhovna Rada of Ukraine, on its second attempt, adopted in the first reading the draft law No. 11416d, which proposes a historic increase in taxes. This year, an additional UAH 58 billion is planned to be raised for the budget. And already in 2025, UAH 137 billion is projected to be raised.