The back-up plan for the economy. How can Ukraine cover the costs of the war?
Source: Svidomi.
Ukraine’s 2024 budget faces a massive deficit: spending is double the revenue. All domestic income goes to defense, while social programs rely on unpredictable foreign aid. Delays in aid packages force Ukraine to seek alternative funding sources amidst a war-torn economy. Managing the tax collection system is one of the scenarios.
Yurii Haidai, senior economist at the CES, said that Ukraine must also raise excise taxes to combat the ‘grey market’ of excisable goods. This is often the ‘grey’ import of tobacco and fuel. This is a joint effort of the government and the customs service.
Ukraine imported $57B worth of goods, mostly vehicles and fuel, and exported $32B in the first 11 months of 2023.Customs duties on non-food imports could boost revenue, but war-related exemptions and complex car taxation hinder this. Haidai notes that customs should first address ‘grey’ imports before raising tax rates.
“We need qualitative changes in customs, which will reduce the share of black and ‘grey’ imports, increase VAT payments, increase customs duties, and improve the situation for Ukrainian businesses competing with black and ‘grey’ imports,” he explains.
Yurii Haidai notes that these are only some taxes the government should consider in order to finance the budget.
“It makes sense to increase taxes on luxuries in one form or another. That is, increasing the tax burden, for example, through a military tax on real estate transactions, better administration and an increase in the transportation tax on expensive cars, the introduction of a military tax on jewellery, and a possible increase in the real estate tax (especially on expensive properties),” Haidai concludes.
At the same time, Haidai believes that improving tax administration is the most essential thing Ukraine needs to do now to find funding for the state budget.