October 6 published a text devoted to the preparation for voting as a whole of the bill on the redirection of the “military” personal income tax. Today, November 8, the document was finally voted on. Accordingly, more details have emerged about exactly where this tax will be redistributed.
So, the key provisions of bill No. 10037: Revenues from the Road Fund in 2024 are sent to the general fund of the state budget and are allocated for defense needs. “Military personal income tax” from October 1, 2023 to December 31 of the year in which martial law ends is counted in the state budget. From October 1 to December 31, 2023, “military personal income tax” is sent to the state budget in the proportion of 50% to 50%: the State Special Communications Service for drones (UAH 13 billion) and the Ministry of Defense for the purchase of artillery systems (UAH 13 billion). From January 1 to December 31 of the year in which martial law was terminated or cancelled, “military personal income tax” is distributed in the following proportions: 45% – GSII for drones (forecast more than 43 billion UAH); 45% — the Ministry of Strategic Industry for the development of production of ammunition and weapons (more than 43 billion UAH); 10% – to managers of the security and defense sector for automatic distribution between military units in proportion to the personal income tax paid (about UAH 10 billion). “Ordinary personal income tax” remains in communities in the amount of 64%. At the same time, at least 4% of the tax should be aimed at making payments for the production of thermal energy, as well as to support enterprises for the production and supply of thermal energy, as well as the centralized supply of cold water and sanitation. Since this draft law is important for the domestic economy, and also caused a great resonance during its preparation, it invites its readers to remember what exactly we wrote about five weeks ago.
On October 5, the Verkhovna Rada Budget Committee approved bill No. 10037 for voting in the second reading.. It provides for the redistribution of personal income tax from the salaries of military personnel (“military personal income tax”), which goes to local budgets, to a special state budget fund. Also, excise taxes and other payments that previously went to the road fund will be transferred in full to the general fund of the state budget.
“After three hours of discussion, the budget committee nevertheless approved for the second reading bill No. 10037 on the “military personal income tax” and excise tax,” wrote a deputy from the Golos party and first deputy head of the Verkhovna Rada Committee on Finance, Taxation and Taxation in his telegram. customs policy Yaroslav Zheleznyak.
The document has not yet reached the session hall, as parliament spent more than 10 hours discussing amendments to the “related” bill No. 10038 on increasing spending on the army in 2023 by more than 300 billion UAH. The deputies managed to consider 988 amendments out of 1000 and closed the meeting.
But bill No. 10037 is likely to be adopted. Chairman of the Rada Committee on Finance, Tax and Customs Policy Daniil Getmantsev believes that there is no alternative, and it is exclusively in favor of transferring personal income tax to a special fund of the state budget.
What do deputies want to do with personal income tax? Bill No. 10037 was initiated by the Cabinet of Ministers. The government registered the document in the Verkhovna Rada on September 12, and on September 20 the parliament adopted it in the first reading.
The bill itself is extremely concise and fits on two pages.. It amends the Budget Code and provides that:
during the period of martial law, the balances of local budgets and the balances of the special fund of local budgets (except for the own revenues of budgetary institutions and subventions from other budgets) are directed by decisions of the relevant local councils (military administrations) to pay for public sector workers, purchase medicines and dressings materials, payments for utilities and energy, for defense measures and tasks; in 2024, as an exception, all revenues provided for in paragraphs 1-3, 6, 62, 63, 64, 65, 68, 69 of part three of Article 29 of the Budget Code are transferred in full to the general fund of the state budget. In particular, this is an excise tax on fuel and vehicles produced/imported into Ukraine, import duty on petroleum products and vehicles, road tolls, and some types of fines for administrative violations; from October 1, 2023 to December 31, 2024, part of the personal income tax, which is deducted from payments to military personnel and police officers and goes to local budgets, is credited in full to a special state budget fund and distributed in the following proportions:
50% – Administration of the State Service for Special Communications and Information Protection for the implementation of measures for the purchase of special equipment and machinery (State Special Communications Service);
50% — to the Ministry of Strategic Industries for the implementation of programs for the development of the military-industrial complex, development, mastery and implementation of new technologies (Ministry of Strategic Industry).
For what purposes will funds from local budgets be used? As Prime Minister Denis Shmyhal explained, the main task is to help the Ukrainian military-industrial complex increase the production of its own drones, weapons and ammunition. According to the prime minister, local budgets now have a fair amount of money that can and should be spent on defense needs.
“During the full-scale invasion, local budget revenues from military personal income tax increased eightfold. For 2023, the projected amount will exceed UAH 96 billion. While in 2021 – about 12 billion UAH. The growth occurs only because the state increases spending on the defense sector and military salaries,” said Denis Shmyhal.
According to the Cabinet of Ministers’ calculations, the redistribution of funds will allow an additional UAH 26 billion to be poured into the domestic military-industrial complex by the end of 2023, and another UAH 94 billion in 2024. At the same time, the Prime Minister promised that the 200 billion UAH accumulated in the accounts of local budgets and budgetary institutions will remain at the disposal of local authorities. If territorial communities need money, the central government is ready to help with subsidies.
“Thus, the resource of local budgets in 2024 will be 75 billion UAH more than it was in 2021 before the full-scale invasion,” Shmygal explained.
How much money do local authorities actually have? The Tax Committee of the Rada provides the following data on the filling of local budgets:
for 9 months of 2023, local budgets received more than 78 billion UAH of military personal income tax. This is 47.2%, or UAH 25.1 billion more compared to the same period last year. revenues of the general fund of local budgets increased by 21.6%, or by UAH 60.2 billion – to UAH 338.8 billion. Local authorities fulfilled their annual revenue plan by 83.4% by October 1; revenues from personal income tax, of which 2/3 are generated by local budget revenues, increased by 20.5% – to UAH 227.1 billion. The annual plan for personal income tax was fulfilled by 82.8%; for 8 months of 2023, the surplus of local budgets amounted to UAH 97 billion.
Let us clarify that personal income tax in Ukraine is distributed in the following proportions: 60% goes to territorial communities, 15% to regional budgets, and the remaining 25% directly to the state budget.
At the same time, in 2022, the share of personal income tax that remains in Terobshchina has increased and amounts to 64%.
Who is against bill No. 10037 and why? The Association of Ukrainian Cities, immediately after the bill appeared in parliament, came out sharply against the withdrawal of personal income tax from territorial communities and sent appeals to the president, parliament and the Cabinet of Ministers.
“For the budgets of territorial communities, this is a loss of UAH 20 billion in 2023 and UAH 65 billion in 2024,” the association said in a statement.
Some heads of regional administrations also criticized bill No. 10037. For example, the head of the Poltava regional council, Alexander Belenky, believes that personal income tax should continue to remain at the disposal of local authorities. And the head of the Lviv regional military administration, Maxim Kozitsky, fears that a reduction in funding could be fatal for the life of the Terobshchina.
After the bill was adopted in the first reading, the All-Ukrainian Association of United Territorial Communities appealed to the head of the Verkhovna Rada Ruslan Stefanchuk with a request to take into account some amendments.
In particular, the association spoke out against the wording of the rule on the redistribution of the entire military personal income tax and proposed dividing the amount of tax that goes to territorial communities equally. That is, leave half of the proceeds to communities, and transfer half to a special fund of the state budget. According to the association, such a mechanism was supported by 63% of surveyed representatives of more than 290 territorial communities.
Former people's deputy of the Rada of the 8th convocation, ex-chairman of the Voters Committee, Alexander Chernenko, assures that local communities already allocate about 45% of military personal income tax to security and defense.
In his opinion, the transfer of the tax to the Ministry of Strategic Industry and the State Special Communications Service is in no way justified. “They want to take it from the communities and transfer it to these ministries: without indicating the intended use for the Armed Forces of Ukraine; without production development programs; without any obligations for military units; without tools to control the use of these funds. Nobody knows where the military money that will be taken from the communities will go,” comments Chernenko.
How do deputies and the Ministry of Finance justify the need for Bill No. 10037? According to Daniil Getmantsev, when local authorities spend money on improving public gardens, while there is a catastrophic lack of funds for the army, this is an abnormal situation.
“In fact, now almost every fourth hryvnia in local budget revenues (without transfers) either hangs on the balance of the accounts of local authorities (the latter exceeded UAH 200 billion), or is spent, to put it mildly, in the wrong way. Instead of this money going to defense,” explains Getmantsev.
Roksolana Pidlasa, for her part, reassures that not all of the personal income tax will go to the special fund. According to her, “regular” personal income tax remains in communities in the amount of 64%. The only thing is that at least 4% of the tax must be allocated to calculations related to heat generation, centralized supply of cold water and drainage.
The Ministry of Finance believes that such a step will significantly strengthen the defense capability of the state. At the same time, fears that the redistribution of personal income tax will lead to a shortage of funds in local budgets are unfounded. According to the Ministry of Finance, communities will receive the necessary compensation to even out budget imbalances.
“Local budgets will in no case remain underfunded. Depending on needs, funds will be distributed from the state budget. The resource of local budgets for 2024 will be formed from the receipt of personal income tax (approximately 237 billion UAH), basic subsidies (21.1 billion UAH) and additional subsidies (33.4 billion UAH). In total, this amounts to more than UAH 290 billion. And this volume is UAH 75 billion more than the resource in 2021, when military personal income tax in the structure of local budgets was no more than 6%. An additional subsidy will allow us to provide support to communities where budget revenues are decreasing,” the Ministry of Finance said in an official statement.