At the end of November, the President of Ukraine, Volodymyr Zelensky, signed a law to increase taxes. Reports TSN. This information is provided by Kontrakty.UA.
The new amendments to the tax legislation involve tax increases for individuals and entrepreneurs. The military tax has risen from one and a half percent to five percent.
Following the president's signing of this law, Ukraine has witnessed a mass closure of individual entrepreneurs. However, the head of the parliamentary committee on finance, tax, and customs policy, Danilo Hetmantsev, denies this.
"Historic Increase"
Zelensky signed the law on historic tax increases on November 28, and it came into effect the following day.
The main changes in the tax code include:
- the military tax rate increased from 1.5% to 5% for all citizens' incomes. This decision is part of the government's efforts to fund defense expenses.
- the profit tax rate for banks has risen to 50% for the year 2024.
- for individual entrepreneurs (FOP) under the simplified tax system, a military tax of 1% of income has been introduced for single tax payers of Group III, while for Groups I, II, and IV – 10% of the minimum wage. Monthly reporting on personal income tax, military tax, and single social contribution has also been implemented.
Additionally, monthly advance payments of profit tax have been introduced for gas stations and currency exchange offices.
This law is critically important for financing the country's military expenses, as the new tax revenues are planned to be used to increase the defense budget. The tax hikes have raised concerns among entrepreneurs, who fear negative impacts on their businesses.
It is expected that the tax increases will generate around 8 billion hryvnias in 2024 and 141 billion hryvnias in 2025.
The head of the parliamentary committee on finance, tax, and customs policy, Danilo Hetmantsev, explained that the decision to raise taxes “retroactively” was forced and justified, albeit not ideal.
“For 2025, Ukraine is fully secured regarding budget revenues. The 140 billion hryvnias that we will receive due to the already adopted law are already accounted for in next year's budget, so we do not see any risks in the development of the basic scenario. However, we may have a pessimistic scenario – if there are negative developments at the front and additional revenues are needed, then various decisions cannot be ruled out,” Hetmantsev noted in an interview with "Suspilne".
“This was a forced decision. The principled position was not to adopt laws under the Christmas tree, but war changes approaches. We chose a bad but easier option. For citizens, it starts from December 1, and for FOPs from January 1, 2025,” Hetmantsev summarized.
Entrepreneurs Are Concerned
The founder of "Healthy Sense Studio", entrepreneur, and public figure Pavlo Sebastyanovych believes that the increase in the military tax is an additional burden on the payroll fund. This will be felt even by teachers and doctors. The payroll fund will not change, but taxation will increase. The expert also points out that the excessive burden on FOP before these changes was the main reason for the shadowing of the economy. Thus, shadowing will only intensify.
In his opinion, the only beneficial innovation is the tax on the super-profits of banks.
The economist, head of the #SaveFOP movement and the Union for the Protection of Entrepreneurship Sergiy Dorotyich shares a similar view, believing that to some extent, in the initial phase, these tax legislation changes will lead to increased revenues to the state budget, but in the long term, they will result in a decline in entrepreneurial initiative and a move to the shadows.
"I think this year's budget will even exceed the revenue part, but next year's budget, in my opinion, will simply be disastrous. Business will, of course, be forced to operate under the rules imposed on it; the tax increases will ultimately crush entrepreneurs, and it will be better for them to simply not work or go into the shadows, as it has always been easier to work in the shadows in Ukraine than in the legal field," Dorotyich noted.
FOPs Are Closing en Masse
After the signing of the law on tax increases, Ukraine witnessed a mass closure of individual entrepreneurs. Since the law came into effect, 22,500 entrepreneurs have ceased their activities.
According to "Opendatabot", on the day the law was signed, November 28, 2,300 FOPs ceased operations. In the first days following the adoption of the law, the number of closures exceeded 1,000 daily, significantly surpassing the usual average of 700 business closures per day.
If we count from 2024, 254,288 individual entrepreneurs have stopped their activities. The largest spike in closures was observed in March when 28,690 FOPs closed. Analysts explain this by entrepreneurs' attempts to avoid additional tax obligations, simplify accounting, and the end of reporting periods.
In the fall, the number of closed FOPs increased due to the adoption of the new tax law.
Some entrepreneurs consider the new taxes to be unfair, while officials emphasize their relatively low rates compared to EU countries.
Experts also note that changes in taxation have significantly impacted Ukraine's business environment, and the situation requires further analysis to mitigate the negative effects.
Adoption of the Law – A Resource for Funding the Army
In turn, Danilo Hetmantsev denies the information regarding the "mass closure" of FOPs.
According to him, the statistics show a different picture. Specifically, as of December 1, 2024, the number of FOPs in Ukraine increased to 2,076.7 thousand. Of these, 272.9 thousand are newly established entrepreneurs registered in 2024, which is 83.6 thousand more than at the beginning of the year.
The indicators show a positive balance: the number of newly created FOPs in 2024 exceeds the number of closures by 92 thousand.
It is worth noting that in the last two months, 47.7 thousand new FOPs have been registered, while 40.7 thousand entrepreneurs have ceased activities.
"These figures do not indicate either economic growth or a decline in the number of entrepreneurs. Unfortunately, the single tax institution has become a tool not for the development of entrepreneurship but for tax evasion by large and medium businesses. I recommend that media outlets fond of sensational headlines adjust their narratives to reality," Danilo Hetmantsev stated.
OnlyFans Models Have Paid Significant Taxes
As reported by the head of the parliamentary Committee on Tax and Customs Policy, Danilo Hetmantsev, as of December 18, 350 OnlyFans models have submitted declarations of their property status and income, declaring 305.4 million hryvnias in revenue.
According to him, this is significant money for the country during wartime.
"The fact that the girls did not pay the tax on time cannot be grounds for criminal prosecution if taxes have been paid. Law enforcement shares this approach," the statement reads.
Therefore, he will insist on including the bill on the decriminalization of Article 301 in the agenda of the Verkhovna Rada.
"And separately regarding prosecution under Article 301 of the Criminal Code. It seems to me that it's time to end this festival of hypocrisy, where society condemns one way while taking money for the army with the other, or where content creators are persecuted by its users," Hetmantsev added.
Recall that earlier, Danilo Hetmantsev noted that the law on raising taxes is unlikely to be challenged in the Constitutional Court.