With few easy options, Ukraine votes to raise taxes on stressed citizens

Ukraine’s parliament voted to approve a tax hike for the first time since the full-scale war broke out, turning to a politically unpopular move as the country continually struggles to find new sources of funding for its growing wartime budget.

The country is facing a $35 billion budget deficit next year, and as Russia’s war continues in its third year with no end in sight, the country needs to find funding to keep its economy afloat and finance its war effort.

“(Raising taxes) was put off to the last possible moment, when it really became obvious that if we do not collect this money, we will not have money to pay salaries to service people,” Yuri Gaidai, senior economist of the CES, told the Kyiv Independent.

“There aren’t many similar situations in history when a country in a war of such scale doesn’t raise taxes,” he said, “but there is an unwillingness (in the government) to make unpopular decisions.” The tax hike will fund around Hr 60.2 billion ($1.45 billion) in 2024 and Hr 122 billion ($2.94 billion) in 2025, according to the Finance Ministry.

There aren’t many similar situations in history when a country in a war of such scale doesn’t raise taxes.

Raising taxes was a “necessary and unavoidable decision,” said Gaidai . “But in my opinion, this is not the best tax increase design possible, because it puts all the burden on those who already pay their fair share of taxes.”

Facing pressure to take action on illegal markets, Ukraine’s parliament also passed a new law to reform the customs service. Major business associations in Ukraine had championed the bill.

However, the change is not expected to increase budget revenues any time soon, because of the time needed to implement the reforms, which include a competitive process to select an independent leader and help with vetting from international partners.

“I would say that this situation with the budget was one of the political enablers for this reform to actually be voted on. Because there is huge pressure from people and from businesses to actually not only raise tax rates but to work on more even tax compliance and on leveling the field,” said Gaidai.

Source: The Kyiv Independent.