The Rada is preparing amendments to the Tax Code: we will pay personal income tax under new rules

Ukraine should adopt amendments to the budget and tax codes to ensure that personal income tax is transferred to local budgets in line with European practice and to improve the mechanism of horizontal equalization of local budgets. This is one of the 150 indicators without which we will not be able to receive EUR 50 billion provided under the Ukraine Facility program.

This was emphasized by Olena Shulyak, Chairperson of the Verkhovna Rada Committee on the Organization of State Power, Local Self-Government, Regional Development and Urban Planning, leader of the Servant of the People party.

According to her, despite previous achievements, decentralization remains unfinished business in institutional, legislative and constitutional terms. The territorial stage of the reform, which involves the amalgamation of communities and the formation of new districts, was successfully completed in 2020, but the reform needs to be continued to ensure its sustainability.

One of the key reform measures should be the adoption of amendments to the budget and tax codes to improve the mechanism of personal income tax (PIT) transfer to local budgets in accordance with European practice and to improve the mechanism of horizontal equalization of local budgets, Shulyak explained.

The parliamentarian also emphasized that the issue of local tax administration is quite painful for most local governments, as there is currently no unity in this matter: suburban united territorial communities want personal income tax (PIT) to be paid at the place of residence of the business entity, while the city authorities insist that it should be paid at the place of business.

However, since there is no technical possibility to administer personal income tax at the place of residence - there is no mechanism for registering individuals - the Parliament is inclined to favor the option of payment at the place of business.

Predictable and adequate funding, Shulyak noted, is necessary to develop and maintain local capacity to implement projects. Therefore, fiscal decentralization, in particular the payment of personal income tax to the budgets of territorial communities, is a critical motivating factor for local governments. It is important to maintain progress and at the same time look for further ways to improve, including bringing tax legislation in line with international best practices, the MP emphasized.

The latter will include assessing the possibility of changing the current practice of distributing tax revenues where the taxpayer lives, rather than where the employer is registered. More generally, Ukraine will consider how to improve the overall process of fiscal decentralization and the best ways to balance the distribution of revenues and expenditures of central, local and local governments.

Shulyak reminded that in the Ukraine Facility plan, more than €1 billion out of €50 billion will be used to finance recovery issues, and this money will be allocated to communities. Therefore, it is necessary to work with communities today to ensure that they have proper planning, so that they clearly understand what needs to be restored in the first place, which projects will be included in development projects.