Will taxes increase in 2025? Hetmantsev answers important questions from business

Ukrainian News decided to ask Danylo Hetmantsev, chairman of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy, about the future financial policy, Ukrainian News reports. We discussed the relationship between pension reform and the stock market, budget policy for 2025, and financial monitoring of card transfers. In this conversation, we also touched upon the issue of political ideologies and the unspoken social contract in Ukraine regarding finance. The published text is the first part of the interview. The second part will be published later.

Increasing excise taxes on cigarettes. Yuzhanina and Zheleznyak write about the huge losses due to the failure to sign the law. It is clear that the issue of signing is a matter for the office and the president himself. What will be the situation with the entry into force, will the scenario with the tax increase be repeated? The law was supposed to come into force on January 1.

The finalization of the law, including the organization of its signing or submission of proposals to it, is really a matter for the President's Office. Everything that was within the powers of the Verkhovna Rada was done: the committee worked on the government's proposals, the deputies in the hall supported them, the Chairman of the Verkhovna Rada certified the document and sent it to the President for signature. I haven't seen any comments on its substance, so I don't understand why the law hasn't been signed yet. We can argue about the amount of budget shortfalls as a result of this failure to sign, but it is definitely there. It seems to me that this is a certain shortcoming that should be eliminated as soon as possible. There are no consequences other than budget shortfalls. The law will not have retroactive effect.

In this context, I would like to remind you of my recent statement in the Telegram channel regarding the decision of the Constitutional Court of 21.01.25 in the case of Geomax-Resource LLC, where the Constitutional Court explains the principle of the rule of law and the component of its legal certainty in the context of changes to the tax law. The Constitutional Court notes that a tax law should have a sufficient transition period (a reasonable time period) from the moment of publication of the law to its entry into force, so that interested parties can prepare and the legislator can find a reasonable balance between frequent changes in the law and certainty of legal norms. That is why I informed the Cabinet of Ministers and the Ministry of Finance that in view of the Constitutional Court's decision, which is the source of law, the Committee will refuse to adopt the practice that we unfortunately resorted to when the full-scale war started, namely, adopting laws without observing this reasonable period. We have had several such decisions in the past. Obviously, they were bad. We were colluding with our own conscience when we supported them, because we realized that expediency probably prevailed. In the fourth year of the war, there are hardly any grounds for this. We will definitely abandon this practice in the future. We will give a reasonable period of time. Ideally, it will be six months before the start of the new budget period.

Is this what the Tax Code provides for?

Yes, it is. Everything was written before us. We have to follow it. Although I am not saying that sometimes it will not be five months instead of six, it is a fact that we will do everything to meet reasonable deadlines.

Minister of Social Policy Oksana Zholnovych said that the funded pension would be launched in 2026. Is it possible to launch the reform without a "revival" of the stock market in Ukraine? If not, when can it be launched?

The pension reform should have been launched 20 years ago. In fact, these issues are directly related - the stock market and pension reform. But for 20 years we have been looking for reasons not to implement pension reform. In fact, we have been looking for these reasons: the supposed fairness of the solidarity system, which does not exist, because it is not fairness but equality in poverty for all, and the fact that the stock market is underdeveloped. It is our political tradition to put reform on the back burner because we are afraid of difficult or sometimes not entirely popular decisions. It is the same story as with the land market, the Labor Code, the Housing Code, etc. These are all issues from the same line. And the fact that we remove ourselves from such very important decisions by postponing them is a crime against society, the state and the people who entrusted us with power. I strongly support the launch of the next level of pension reform. If we had implemented it 20 years ago, we could have already talked about the results and corrected them. But now we are still flying in some dreams and having a completely absurd discussion.

Regarding the stock market. We can talk not about "revival" but about the creation of a market in general, because in fact, the regulator's activities in this area have led to the fact that we have no stock market. I have said this many times. The institutional failure of the National Commission is obvious, and not only to me. It is obvious to domestic and international experts and market participants. There is no discussion about this in expert circles. And the fact that the number of registered joint stock companies has fallen significantly because they see no way to raise money, or small investors are not covered by the stock market in any way, is only a consequence of the helplessness of the Commission. In fact, today the stock market is based on a few enthusiasts who, against all odds, are doing worthy projects, such as Andriy Zhurzhiy, founder of the Inzhur collective investment fund.

Let's recall the case of Freedom Finance, which in itself undermined confidence in the stock market on a par with the pyramid schemes of the 90s. Full responsibility for this case lies with the National Commission. Unfortunately, the regulator has withdrawn itself. It has no leadership position in organizing the stock market. Therefore, the prospects for the development of the stock market with the current composition of the Commission look more and more illusory.

And we have to make decisions on pension reform regardless. And it is undoubtedly impossible to simultaneously deal with both the stock market and pension reform, strengthening the institutionally incapable regulator.

At the beginning of last year, there was no question of raising taxes, but then we had to do it at the end of the year. This year, the Budget Committee assured us that the budget is designed to withstand the fighting throughout the year. Is there a risk that taxes will need to be raised this year?

If we look back at the 2024 budget, which was adopted in 2023, for some reason the government chose the war to end in mid-2024 as the base case scenario for this budget. It's a strange scenario, but the budget itself already included a "hole" in the financing of the defense sector. Since February 2024, I have been saying that changes to the budget are needed both in terms of sources and expenditures. For some reason, they appeared in the Verkhovna Rada only in July. This year, there is no such thing. The budget has now been calculated based on the baseline scenario of continuing military operations until the end of the year. It is supported by confirmed assistance from partners ($38.4 billion) and domestic revenues.

We also forecast an increase in the state budget overperformance by the tax service compared to 2024. We see a significantly larger resource from unshadowing than $2.5 billion in 2024. This is understood by the new head of the State Tax Service, who is justified in publicly demanding that his subordinates overfulfill the proven plans not by increasing tax pressure, but by de-shadowing. The potential of unshadowing and what has been done over the past 3 years will allow us to significantly increase the amount of budget overperformance compared to 2024 without any extra effort. Taking all this into account, we are quite confident about our prospects for 2025, unless there is some extremely negative scenario, which is fundamentally important. Something that I don't even want to talk about, which would require an immediate collection of large additional financial resources. But this is currently unlikely. Therefore, to summarize, I can say that no, we do not plan to raise taxes in 2025.

Which country's financial policy is a model for you?

Any attempts to find a copy of the development of another country and transfer it to Ukraine are a waste of time, because there is no such copy, because everyone has different historical, geographical, political and economic conditions, they are incomparable to ours. Of course, I like the example of Israel, which everyone likes. Everybody likes the example of South Korea and Singapore, but their development conditions are not comparable to ours. This is the first thing.

Second, the financial policy of one country changes frequently. Biden's or Trump's policies are all American policies. Argentina's policy before Javier Millais and during his term is also different. We can't take a model anywhere and blindly follow it. Therefore, in this context, I would focus on policy principles, not templates.

And in our particular case, the main principle is the rule of law, which we must ensure in finance. The rule of law is what I have been doing in finance since 2019. It is a level playing field, de-shadowing, creating equality for everyone before the law, without which you cannot build anything. Without the rule of law, the country will be doomed to eternal stagnation and swamp.

The second is stability and predictability. There is not a single successful country that became so in two or three years. It always takes one and a half to two generations (30-40 years). This can only be achieved through a consistent policy, following the lead of predecessors, without staggering swings to the right, left, or back and forth. Consistency was present in all countries that became successful. Sometimes it was ensured by a rigid ideology and national consciousness, as in Israel, sometimes by authoritarianism, as in Singapore and South Korea. Sometimes it was achieved through foreign influence, as in the Federal Republic of Germany after World War II. It was definitely a consistent, understandable and predictable policy that was designed for several decades to come. It should be based on the consensus of the elites and the population, which should be devoid of illusions.

What illusions can we have?

We can't, but we do. This is the belief of adults in absolutely naive childish fairy tales. About the uniqueness of Ukrainians, about our special way, about our unique bicycle, about the guilt of anyone but ourselves in our fate, about the existence of some hero who will come and give us happiness. I'm not talking about just crazy beliefs like the simultaneous abolition of taxes and increase in pensions. We cannot, as adults, believe in EU membership, for example, while maintaining Europe's largest tax evasion scheme for medium and large businesses through mimicry of small businesses and payment of a single tax, or in good roads and salaries in envelopes. The EU is not compatible with the USSR - we must finally accept this.

We must not chase beautiful presentations: "Number one in the world!", "Number two in Europe!" or some prizes that no one really needs. We have to very pragmatically integrate our economy into the EU production chains through daily hard work. Without the EU, we have no future, it is not a question of alternative, but of survival. Summarizing everything I have said, analyzing and drawing a conclusion, the closest to imitation, but not a copycat, are the countries that have become EU members over the past 20 years.

Who would you name first?

Poland, of course. With a comparable, more or less equal economic potential, even less than ours in the early 1990s, Poland is now among the top 30 countries in the world in terms of its welfare. This is exactly the path they have taken and the path we should repeat. Not one by one. Unfortunately, we have less time to do so. This is definitely not some kind of pre-inscribed algorithm, but it is at least a general guideline that we need to follow. So there will be no miracles, no recipes for success or magic pills. It will be a long, hard, consistent work, but with a clear place of the country in the world in 10-15 years. This is, of course, if we want to be, and not burn in the fire of presentations by a bunch of pseudo-economic strategists, visionaries and other futurists.

Do we have tax evasion among the conditions we have? If you take it very hard, can't it violate the unwritten social contract in our society?

My goal is to break this contract. Because what was this contract about? For decades, the state tolerated tax evasion, and society tolerated corruption-this was the unwritten contract of the first three decades of Ukraine. Is it acceptable? Does any country have a future with such a social contract? No country with such a social contract has any future. So, yes, it is true. And I am working consciously to break this agreement and instead conclude an agreement based on the basic principle of European civilization - the rule of law. This is the only possible way. Apart from it, we can talk about many things, write beautiful posts, rivet presentations, but this is a path to nowhere. This is an absolutely manipulative discussion, which, by the way, is sometimes led by some of our not particularly professional officials.

And the argument is that the system works.

It does not work. If the system were working, we would not have an average pension of 5.8 thousand hryvnias and a minimum pension of 2.3 thousand hryvnias. If the system worked, we would not have an average salary of 20,500 hryvnias. And the minimum wage would also be different. If the system had worked properly, we would now be at the level of Poland.

During the war, all resources are concentrated around providing for the army, but what kind of economic policy can Ukraine have afterwards? Many people say that it is the right-wing economic policy that will allow for development, but the demand for left-wing policies is increasing due to the large number of veterans, including people with disabilities. Of course, we are not talking about a radical bias in one direction.

The first point has already been made, but I will emphasize it separately. The first "-ism" we must reject is radicalism. It is definitely evil. Both left and right, any radicalism is evil. Radicalism is very harmful to all of us, I think. Any radical response to the greatest evil is also evil. We must reject radicalism.

Second. In our and foreign (Western) discourse, there is a certain classification of approaches that was probably once relevant, but today has nothing to do with contemporary reality. It exists in textbooks, but it has long since disappeared from reality. This classification consists in the division into right-wing and left-wing ideology, as well as centrist ideology. If we analyze the policies of certain countries and parties, today we see more and more of a mix of policies. And this "mix" is quite successful. We see parties that uphold traditional values but advocate raising taxes for the rich and directing them to help the socially vulnerable. This is a combination of right-wing ideology and socialism, but there are successful cases. Those who advocate for equality for LGBT people and women, calling themselves liberals because they stand for human rights, at the same time advocate quotas, which is direct state intervention and an increase in the state in society. This is a negative example of a mix. But both the first and the second show that everything in the world is not refined for a long time, and pure ideology does not exist in the wild.

I would urge us to abandon attempts to build some kind of "-ism" in our country, or to realize someone's theoretical concept. I believe that the only "-ism" that is acceptable to us is pragmatism. Pragmatism is what we have to implement by introducing certain mechanisms that have been previously tested in other countries with a clear result in numbers and calculated risks.

That is, without implementing a certain ideology?

What is ideology? It is a dangerous invention of modernity designed to influence the consciousness of the masses, creating the very mass man Ortega y Gasset wrote about; ideology is a more or less coherent system of pre-prepared answers to all or most of a person's life questions. It is something that tries to replace his search for truth, God, and himself. But ideology is something created by man for men, and therefore, by definition, imperfect, false; it is a set of simple (and therefore false) answers to complex questions.

Can we consider the fundamental European values of the pursuit of truth, justice, and grace to be ideology? Can we consider the principle of the rule of law developed on their basis an ideology? No, it is a form, a structure within which civilization seeks answers to all questions of its own existence, from migration policy to economic development, and without which it can simply lose itself. Therefore, what is mandatory for us and what we must not deviate from is the living principles enshrined in the basic documents of the EU. Everything else, including tax policy, should be united by a pragmatic search for and implementation of previously successful solutions and mechanisms aimed at developing the economy and simplifying regulatory procedures.

And such mechanisms should be implemented without trying to implement any particular ideology. Do we need to make the tax system attractive? Yes, we do, but definitely not by abolishing taxes(laughs). At the same time, we need to improve and simplify administration through digitalization and make it tougher in those areas where checks are not bounced, where they are chopped up into individual entrepreneurs to deliberately evade taxation to gain additional margin, i.e. to make the fight against abuse more rigorous.

On the other hand, in bringing salaries out of the shadows, do we need to introduce a more liberal income tax system? Yes, we need to reduce the rate and make progression. This also needs to be done. But I am not convinced that there is a "right" or "left" in this. These are specific mechanisms that are designed to make the system fair through its honesty. This should be done not only in finance. This needs to be done in every area of the state and society.

In one of our interviews, you said that the state is a bad owner for an enterprise. What is the role of the state in the business sector? To what extent should the "state hand" be present?

The presence of the state should be minimal, but the work of state mechanisms should be strict and inevitable within this minimum. The state should not be the owner at all, but it can be the owner only where it has no other alternatives.

The state should provide a simple, electronic, accessible, transparent tax payment system, avoiding contact between the taxman and the taxpayer as much as possible. Over the past three years, by the way, we have been automating the system a lot, and there are tangible results, and they will be even more tangible if the new tax authorities take up the reforms.

But if an entrepreneur does not pay taxes, responsibility must be inevitable, because it is always a two-sided coin. On the one hand, you do your best not to have a destructive impact on business, which is right: the state should remove itself from any influence as much as possible; but if business violates the law, then responsibility must be tough and inevitable. This is a question of normal modern pragmatism.

If transfers were restricted primarily to combat drops, how long should they work to resolve the issue? Will more restrictions be imposed?

Financial monitoring is not a temporary phenomenon and not some kind of repressive measure to catch some "scum" and stop their abuse. It is a permanent phenomenon that will accompany our financial system as a civilized financial system throughout its history if we want to be part of the undeniably civilized European world. Financial monitoring measures are divided into mandatory financial monitoring and internal monitoring. That is, the one that the bank cannot fail to carry out and the one that the bank carries out in accordance with its internal policies aimed at preventing money laundering. But the peculiarity of both is that they are permanent.

Therefore, we cannot say that a decision on a certain restriction has been made by the National Bank and will be canceled afterwards, or vice versa, that there will be some stricter restrictions afterwards. This is an ongoing effort to prevent the abuse of cashless payments for drug trafficking and illegal trade, and even terrorism. Let me remind you for a moment that our country is at war. But the further development of certain restrictions will depend primarily on the commercial banks that introduce them. It is their right to determine these restrictions. And I am very grateful to the banks for their responsible, state-like stance in countering the evil of illegal payments.

And one more thing. Financial monitoring is not about responsibility, but about the right to ask a person where they got the money. If a pensioner's card is charged with money that does not correspond to his or her pension, a commercial bank has the right to ask: "Where did you get this money?". The pensioner can answer this question by providing proof of the origin of the money. He can prove that the money was not obtained by criminal means. After that, the financial monitoring will be completed. There will be no more financial monitoring of this pensioner unless there are some stunning anomalies with his account again. Financial monitoring is about verifying the sources of funds, identifying the client and eliminating the possibility of account abuse. It should be perceived as such. Financial monitoring is a normal civilized practice that all our refugees in Europe face when opening and using an account. If we want to be a part of European civilization, we will have to put up with this.

Is this a stage in the destruction of that social contract?

Yes, this is one of the things that is destroying the old social contract. Instead, we are introducing the rules that are generally accepted in any civilized world. And for me, the discussion about whether we should do this or not sounds wild.

Does joining the EU imply the introduction of the euro in Ukraine in some time, or is it even possible?

It is too early to talk about this. There are clear criteria in the Maastricht Treaty: inflation in the year of evaluation should not exceed 1.5 percentage points (p.p.) of the three best EU member states in this respect, public debt should not exceed 60% of GDP, budget deficit should not exceed 3% of GVA, long-term nominal interest rate on ten-year government bonds should not exceed 2 p.p. of the three best EU countries, and the country should be in the European exchange rate mechanism for two years. Of the 27 EU members, only 20 are members of the Eurozone. When joining the EU, Denmark stipulated that it would not give up its own currency. Sweden held a referendum, people rejected it, and the issue "hung". Five other countries: Poland, the Czech Republic, Hungary, Bulgaria, and Romania are in no hurry to do so.

Therefore, it is too early to talk about it for sure, and even if we join the EU, we will be able to talk about it no earlier than 2035. This is a fairy tale scenario, you know, that in 2035 the euro will appear in Ukraine. But even if it doesn't, it won't be a disaster either. There are EU countries that function without the euro, and there is nothing wrong with that.

Is such a scenario even possible?

Only during the transition period when the euro is introduced. For example, in Germany, the mark remained legal tender for three years after the euro was introduced on January 1, 1999.

Mykola Yashchuk