Date of publication: 21 September 2024
Ivan Maryniuk, Head of Tax Law Practice
Source: NV Business
It’s time for non-standard decisions. On 17 September 2024, the Verkhovna Rada promoted the revised version of the draft law No. 11416-d On Tax Increases in the first reading.
The reason for such a difficult step is the need to support the economy and ensure Ukraine’s budget revenue during martial law. It is expected that tax changes may increase budget revenue by UAH 58 billion in 2024 and UAH 137 billion in 2025.
Who will pay and how much?
Entrepreneurs and legal entities – single taxpayers
After the law comes into force, individual entrepreneurs will pay the military tax in the following amounts:
- Individual entrepreneurs of groups I, II and IV – 10% of the minimum wage (UAH 710 in 2024, UAH 800 (as expected) in 2025);
- Individual entrepreneurs of group III – 1% of income;
- Individual entrepreneurs and self-employed persons are under the general taxation system – 5%.
Individual entrepreneurs of groups I, II and IV must pay the military tax in advance before the 20th day of the current month. Individual entrepreneurs of group III within 10 days of the declaration deadline. That is, individual entrepreneurs of groups I-III will pay the military tax together with the single tax (within the same timeframe), except for individual entrepreneurs of group IV.
Similar conditions for paying military tax apply to legal entities-single tax payers.
The increased military tax rate will be effective from 1 October 2024 until 31 December of the year when martial law is terminated or lifted. After this, the military tax will be paid in accordance with the current rules.
Retail fuel taxation at petrol stations
In the near future, fuel retail enterprises will be required to pay advance income tax contributions.
Advance payments will range from UAH 30,000 to UAH 80,000 for each place of business (a petrol station). The amount of the payment depends on whether alcohol and tobacco products are sold at the petrol station. In addition, it will depend on the types and amounts of fuel sold.
At the same time, the negative side of the anticipated changes is that
- If the amount of the advance payment exceeds the amount of income tax liabilities for the relevant period, the excess amount will not be transferred to reduce tax liabilities for the next reporting period;
- If a refund isn’t available for overpaid and/or erroneously paid tax liabilities that cannot be credited to other taxes or fees.
Thus, such advance payments will be a prototype of a fixed monthly payment from each petrol station. They will be collected regardless of profitability.
Individuals
For natural persons, the military tax rate will also increase from 1.5% to 5%. This increase will be in effect until 31 December when martial law is terminated or lifted.
In fact, this will mean a 3.5% decrease in natural persons’ net income (e.g., from salaries).
Banks
For banks, the income tax rate for 2024 will increase from 25% to 50%. This tax rate is applied retrospectively (also to income from previous reporting periods). In this regard, banks will need to clarify the indicators of previous (reported) periods in the declaration for the 3rd quarter of 2024.
The non-bank financial sector
Non-bank financial institutions (except insurers) will be subject to a 25% income tax rate.
Change in deadlines for military and personal income tax reports
For tax agents (including employers), the tax reporting period for income paid to natural persons will change from quarterly to monthly.
The period for filing a notice of hiring or dismissing employees will also be reduced from 40 to 20 calendar days.
In conclusion, I can say that the revised version of draft law No. 11416-d is less stringent and radical than the previous one. The draft law does not provide for such controversial changes as the application of a 15% military tax rate for vehicle registration or a 30% military tax for jewellery manufacturers.
At the same time, tax increase could lead to an increase in fuel prices, financial services, or some goods (due to an increase in the cost of goods in connection with pay rise to cover the costs for raising the amount of military tax to retain employees).
