Rada passes law on tax increases, but without key amendment

On Thursday, the Verkhovna Rada adopted draft law No. 11416-d as a whole, with 247 MPs voting in favor.

The main provision of the bill is the increase in the military levy from 1.5% to 5%. However, lawmakers rejected a proposal to increase the military levy for military personnel, who will continue to pay at the 1.5% rate.

The bill introduces a military levy for sole proprietors (FOPs).

During the discussion of amendments, legislators rejected a proposal supported by the relevant committee that defined who would be subject to the increased military levy and what would be the base of taxation. Therefore, the version adopted in the first reading remains in effect: 1% of income for payers of the single tax of the third group; 10% of the minimum wage for sole proprietors who are payers of the single tax of the first, second, and fourth groups.

"This amendment is half of the law; it is physically laid out on ten pages," commented Yaroslav Zheleznyak, the first deputy chairman of the committee. He predicts that the law will need to be re-voted due to this.

The law also establishes a 50% corporate income tax rate for banks in 2024 (up from 25%) and increases the corporate income tax rate for non-bank financial institutions (excluding insurers) to 25% starting in 2025.

The head of the tax committee, Danil Getmantsev, explained in a Telegram post the specific changes that were included in the rejected amendment:

→ Exemptions for sole proprietors from paying the military levy while on sick leave or vacation;

→ Exemptions from paying the military tax if the sole proprietor is registered in temporarily occupied territories or areas of military operations;

→ Deferral of the military tax payment for the first month after the law comes into effect and no penalties for non-payment of the military tax for October;

→ Non-application of the 5% rate to income subject to annual declaration for 2024 (important for sole proprietors on the general system and foreign income);

→ Cancellation of the obligation to pay the military levy if the sole proprietor ceased business activities between October 1 and the law coming into effect;

→ Possibility of including the military levy in the calculation of the minimum tax liability for payers of the single tax for whom the military levy is introduced;

→ Algorithm for tax agencies regarding salary advances paid in connection with the transition to the new rate within the current month;

→ Exemption from paying the military levy for electronic residents (e-residents).

Zheleznyak separately clarified that the increase in the military tax will now be calculated from the moment the law comes into effect, not from October 1 (except for sole proprietors on simplified taxation, for whom the date remains October 1).

Bill №11416-d on increasing taxes passed its first reading on September 17. It is expected to increase budget revenues by 58 billion hryvnias ($1.4 billion) this year and 137 billion hryvnias ($3.3 billion) next year.

In September, the International Monetary Fund announced its support for the tax increase in Ukraine.