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On 10 October 2024, the Verkhovna Rada of Ukraine adopted draft law No. 11416-d, which provides for an increase in the military tax from 1.5% to 5% and fixing the bank profit tax at 50%. This decision was supported by 247 MPs with the required 226 votes. However, the MPs failed to agree on a key amendment that could have mitigated the negative effects of the tax increase on taxpayers, TimeUkraineIsrael reports.
Negative consequences for business
Experts note that the adoption of this law could lead to higher prices for goods and services, as well as to the migration of some legal businesses into the shadow economy. Svitlana Mykhailovska, Deputy Director of the European Business Association, noted that the tax increase will make doing business in the legal sector of the economy economically unprofitable for many companies.
Comments from business representatives
Tatyana Izovit, Chairman of the Board of Ukrlegprom, stressed that the new tax changes will hit legitimate businesses hard, especially in the face of competition from imported goods. She also noted that the free trade agreement with Turkey could lead to further reduction in the price of imported products, which in turn would worsen conditions for Ukrainian producers.
Experts also note that the increase in the military tax will increase operating costs in the construction sector, which could lead to higher property prices. Yevhen Favorov, chairman of the board of the Ukrainian Association of Developers, predicts that developers may be forced to raise housing prices to compensate for the costs.
Implications for the IT industry and the banking sector
Changes in tax policy could also have a significant impact on the IT industry. If the new tax rules come into effect, it could cause the industry to fall by up to 30% by 2025, which would negatively affect the number of jobs and investments.
In the banking sector, the increase in the corporate income tax to 50% is causing concern among bankers. This could affect the stability of Ukraine’s financial system, as not all banks are able to make money on government securities; most of them depend on lending to businesses and households.
The adoption of the tax increase law, despite its importance for state financing, has raised concerns in the business community that it could lead to negative economic consequences. The government should weigh up these risks and find balanced solutions that support Ukrainian business and do not harm the country’s economic development.
