Ukrainian Finance Ministry insists on raising military levy instead of higher VAT

MOSCOW. July 29 (Interfax) - Raising a military levy is more preferable to fund defense spending than increase in the value-added tax (VAT), the Ukrainian Finance Ministry explaining the position in terms of protecting vulnerable groups of people.

"Raising this tax [VAT] will automatically result in higher prices for basic goods, especially medicines and core foodstuffs, such as bread, milk, butter, and so on. Even a slight rise in prices for core food products may become a major financial burden for vulnerable groups of people, for example people of retirement age," Ukrainian media quoted the Finance Ministry as saying in a statement on its website.

A more socially fair scheme is put forward, the statement said. The scheme envisions imposing a military levy, in particular on goods that are not necessities, such as cars, real estate and jewelry, it said.

Eerier, think-tanks, business associations and individual businesses criticized the government's proposal to raise the military levy, in particular imposing a 1% levy on the income of legal entities, which is actually the sale tax, and expanding the military levy on salary from 1.5% to 5%. The government's proposals included the possibility of raising VAT, unshadowing the economy and improving the performance of supervisory authorities as alternatives.

The Finance Ministry does not mention in its explanatory note the proposal for a 1% military levy on income and a higher military levy on salaries, though it estimates that they should yield UAH 50.5 billion and UAH 45.5 billion, respectively, out of the UAH 138.7 billion in additional revenue.

According to the statement, security and defense spending was increased by around $6 billion since the beginning of 2024 due to a serious delay in the supply of weapons from partners, and currently the need for their additional funding is currently estimated at UAH 500 billion taking into account the new demands of the Defense Forces and other military agencies.

"The most lenient option for funding additional military needs among all possible is proposed. It consists of two parts. Almost three quarters [...] are suggested to be provided not at the expense of tax revision (UAH 361.6 billion). And only one part (UAH 138.7 billion) at the expense of revising excise taxes, military levy and a number of other measures," the statement said.

It was reported earlier that the government's main initiatives include increasing the military levy on personal income from 1.5% to 5% (estimated additional income of around UAH 45.5 billion) and its paying by individual entrepreneurs in the amount of UAH 800 per month (UAH 2.3 billion), as well as the introduction of a military levy for legal entities and individual entrepreneurs of the third group in the amount of 1% of income (UAH 50.5 billion).

The government also proposed raising or introducing a 5% military levy on mobile communications (UAH 0.9 billion), purchase of bank metals (UAH 0.02 billion) and real estate (except for one object per year) (UAH 1.2 billion), 15% on the purchase of cars for their first registration in Ukraine (UAH 10.2 billion), and 30% on the purchase of jewelry with its payment by retailers (UAH 0.14 billion).

Other novelties include monthly advanced payments of corporate income tax by fuel retailers in the amount of 0.5 of the minimal salary per one cubic meter of fuel storage tanks (UAH 8.3 billion), setting a specific excise tax rate of 0.1 euro per one liter of drinks with added sugar or other sweeteners (UAH 2.4 billion), and lowering the threshold for duty-free parcels from abroad from 150 euros to 45 euros (UAH 3.3 billion).

These measures are expected to give UAH 341.9 billion to the state budget in 2025.