The Rada does not abandon the idea of raising VAT

The Verkhovna Rada may return to the idea of raising the value-added tax rate in search of opportunities to fill the state budget, which lacks half a trillion hryvnias by the end of the year, Ekonomichna Pravda reports.

This was stated by Roksolana Pidlasa, chairman of the Parliamentary Budget Committee, in a podcast of the Chronicles of Economics.

The first versions of the tax increase developed by the Ministry of Finance included a VAT increase. However, in the final version, the ministry abandoned this in favor of raising the military tax rates.

According to Pidlasa, this decision was political. However, raising VAT has a number of advantages: it is not a new tax, so it is easy to administer, and a 2-4 percentage point increase in the rate will have a tangible effect. VAT is a budget-forming tax, with import and domestic VAT expected to bring in at least UAH 788 billion this year.

"My personal political forecast is that we will return to the idea of raising VAT. We need to understand that the proposal we are discussing now is still subject to changes. MPs will not vote for the government's version in full. I am not saying that this will allow us to completely abandon the military tax increase," the head of the Budget Committee said.

She added that among the proposals of the Ministry of Finance that the Rada may reconsider are a tax on sweet water, which is expected to bring in only 7 billion a year, but which will be difficult to administer, as well as the issue of import VAT on parcels worth up to 150 euros.

Areminder:

The budget is half a trillion hryvnias short of funding the defense sector by the end of the year. As a result, the government and the Ministry of Finance have drafted amendments to the budget to cover the corresponding amount.

They plan to fill the budget from four main sources: UAH 125 billion from raising and introducing new taxes, UAH 126 billion from savings on servicing and repaying the public debt, UAH 160 billion from the placement of domestic government bonds, and UAH 89 billion from over-execution of existing taxes and fees.

It is proposed to increase the military tax rate from 1.5% to 5% for individuals, to introduce a military tax for legal entities in the amount of 1% of income, to introduce a military tax for individual entrepreneurs of the first, second and fourth groups in the amount of UAH 800 per month, and to introduce a military tax for individual entrepreneurs of the third group in the amount of 1% of income.

This approach was criticized. 13 think tanks suggested that the Cabinet of Ministers raise VAT rather than the military fee. The government's initial proposal was to increase the VAT rate from 20% to 22-23%, and the military duty from 1.5% to 5%. In addition, individual entrepreneurs were expected to pay the latter.

The Ministry of Finance believes that they are offering the most lenient option for financing additional military needs among all possible options. It was expected that the budget and tax bills would be adopted in both readings in July, but on July 23, the Ukrainian parliament was adjourned until August.

Dana Hordiychuk