The Verkhovna Rada Committee made amendments to the draft law on the redirection of the “military personal income tax”. The main points

On October 6, the Verkhovna Rada (the Ukrainian Parliament) should begin consideration of draft law No. 10037 on the transfer of "military personal income tax " to the state budget instead of the local one.

The draft law was approved for the first time on September 20, but before the second reading, the MPs made more than a thousand amendments to the document. A representative of the "Voice" Yaroslav Zheleznyak assumes that the law will be adopted already in the next plenary week.

Meanwhile, the head of the Verkhovna Radaʼs Budget Committee Roksolana Pidlasa informed about the changes to the latest version of the document, namely:

1

From October 1 to December 31, 2023, the "military personal income tax" should be directed to the state budget in a ratio of 50% to 50%: State Special Communications for drones (UAH 13 billion) and the Ministry of Defense for the purchase of artillery systems (UAH 13 billion).

2

From January 1 to December 31 of the year in which martial law was suspended or abolished, "military personal income tax" shall be distributed in the following proportions:

• 45% — State Special Communications for drones (projection of UAH 43+ billion);
• 45% — to the Ministry of Strategic Industries of Ukraine for the production of ammunition and weapons (UAH 43+ billion);
• 10% — to military units in the field (about UAH 10 billion)

What is interesting about the "military personal income tax"

In the first seven months of 2022, the maintenance of military personnel was the largest item of expenditure — 520 billion hryvnias, or a third of all state expenditures since the beginning of the year. Since the military also pays taxes on the income received (it is actually about personal income tax), the corresponding charges have increased very sharply and on a large scale.

Currently, income from personal income tax is distributed between state and local budgets: 64% goes to community budgets, 15% to regional budgets, and the rest to the state budget.

During the war, the "military personal income tax" became an important source of filling local budgets — the incomes of communities increased eightfold. In 2023, the projected amount of revenues from the "military personal income tax" is expected to be at the level of 96 billion hryvnias. For comparison: in 2021, it was at the level of 12 billion hryvnias.

"Super incomes" were received by those communities on the territory of which military units or training centers are registered. That is, different communities can have radically different incomes, and not all of them "rationally" dispose of large incomes and generate corruption risks.

Pro and contra redistribution of personal income tax

Proponents of redistribution give the following arguments:

• the increase in revenues became artificial, because they were caused by the war. That is, the communities "did nothing" to increase their budget revenues;
• monetary support for the military is paid from the state budget, so it should be returned to the state budget;
• not all communities rationally use "unplanned" surplus profits;

Opponents of redistribution give the following arguments:

• withdrawal of the "military personal income tax" is regarded as a curtailment of the decentralization reform;
• local authorities consider themselves more mobile in decision-making, in particular in matters of assistance to the military and strengthening of defense capabilities;
• for many communities in the south and east of the country, the "military personal income tax" is almost the key source of filling the budget [under this point, the government plans to increase financial support of local budgets through the system of subventions and subsidies].

By the end of the year, Ukraine lacks 250 billion hryvnias to fund the military. The Defense Minister Rustem Umyerov proposes to take income from personal income tax (PIT) for payments to military personnel and direct them to defense needs.