Hetmantsev's dream of raising taxes has come true, but there is a nuance

The Verkhovna Rada of Ukraine has raised taxes, which, according to government estimates, will bring an additional UAH 58 billion to the budget this year and UAH 137 billion next year. The European Business Association is convinced that the new rules will force some bona fide businesses into the shadows, UNN reports.

Getmantsev's dreams 

The main ideologue of tax increases in Ukraine, as a "true statesman," was Danylo Hetmantsev, chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy. His statement that "taxation is the art of plucking a goose so that it does not scream" is worthy of note. 

After Hetmantsev became an MP in 2019 and headed the parliament's tax committee, he methodically did everything he could to "pluck the goose" as hard as possible, despite the fact that it is already screaming in thousands throughout the country. 

Russia's full-scale invasion of Ukraine has probably only added to Hetmantsev's enthusiasm, and under the pretext of finding funds for the weakened economy, he seems to be trying to "wring the neck of the goose", forgetting that only a successful and working business can help the country get through difficult times and restore economic growth. Moreover, it is the volunteer entrepreneurs who help the military to meet their needs in a timely manner.  

At the same time, the "statesman" declares the fight against businesses operating in the shadows at every opportunity. To do this, he even pushed through the Verkhovna Rada a law on the creation of a "white business club" that provides preferences for the chosen ones. 

After the government officially announced that the state budget lacks at least UAH 500 billion for military spending, Hetmantsev probably re-ignited the idea of raising taxes and actively defended the law. 

For whom taxes were raised 

The adopted law provides for an increase in the military tax for those who have paid it before, and it has also been introduced for those who work under the simplified taxation system.  

In particular, the military tax rate will increase from 1.5% to 5% of an individual's income. This will not apply to the military. For single tax payers of the third group, the military tax will be 1% of income. For individual entrepreneurs of groups I, II, and IV, the military tax will be 10% of the minimum wage. It is currently UAH 8,000 per month. At the same time, it is not yet clear from what date businesses will have to pay the updated taxes. 

In addition, starting from January 1, 2025, citizens will have to pay 5% of the military fee from their other income. This is in addition to the salary. These changes will be in effect until the end of the year in which martial law, imposed due to the full-scale war unleashed by Russia, ends. 

According to the adopted law, banks will have to pay 50% of the corporate income tax in 2024, i.e. this provision will be applied retroactively.  Financial institutions, except for insurance companies, will pay 25% of their profits starting from January 1, 2025.  Currently, the rate for them is 18%. 

The changes will also affect gas stations operating in Ukraine. In particular, they will have to pay advance payments of income tax - in the amount of 30, 45 or 60 thousand UAH, depending on the type of refueling for each place of sale of fuel.    

The advance payment rate for currency exchange offices will now depend on the euro exchange rate and will amount to 700 euros for each point in Kiev, 600 euros for cities with a population of more than 50 thousand inhabitants and 200 euros for other localities.  

In addition, the law exempts from taxation in 2024-2025 income received under the "Made in Ukraine" program, and charitable assistance from the budgets of other states will continue to be tax-free. 

What the business says 

The European Business Association (EBA) criticized the new law. They are convinced that it will, on the contrary, push honest businesses into the shadows. 

"The only thing that business does not understand is why only bona fide businesses should pay money. Bona fide businesses wonder why they don't work in the shadows, why they don't go there in order to generate additional revenues to the state budget. So what we saw in the law is that there is nothing to combat the shadow, nothing to close various holes that lead to losses in the state budget," EBA executive director Anna Derevyanko said during a briefing.  

She added that according to their estimates, 400-500 billion UAH may be in the shadows. 

"At the moment, our research shows that the military tax will be a serious barrier for bona fide businesses, as 53% of companies plan to try to pay this military tax (surcharge) at their own expense, while 33% will not be able to cope with it at all. So, we see that the situation is quite complicated. We see that it will not be businesses that will actually pay additional taxes, but people," added Derevyanko. 

She also noted that ultimately, the tax increase will result in higher prices and the consumer will pay. 

According to her, instead of raising taxes in the country, it would be more appropriate for the authorities to step up the fight against shadow businessmen and introduce economic reservations. This would increase the confidence of entrepreneurs in the ability to continue their work. 

"We would be willing to pay these taxes if everyone paid them equally. Because if half of the business pays taxes and the other half doesn't pay them, you understand that this distorts competition. And in the end, some part of the transparent, conscientious business will have to give up and also go into the shadows, because they simply will not stand up to competition," Derevyanko summed up. 

Almost all prominent businessmen and economic experts have warned that a tax increase would have a catastrophic impact on the economy. However, this does not seem to have prevented Danylo Hetmantsev, the chairman of the Rada's tax committee, from realizing his dream and securing support for the relevant law in the parliament, despite the fact that the price of such dreams can be very high.