This amendment delays the implementation of new taxation measures for individual entrepreneurs of the third group until January 1, 2025. This decision comes amid ongoing adjustments to Ukraine's fiscal policies aimed at supporting economic stability and growth during challenging times.
Amendment Details
People's Deputy Yaroslav Zheleznyak announced the amendment via Telegram on Tuesday, clarifying that the new taxation for individual entrepreneurs of the third group will now take effect from January 1, 2025. This change affects the draft law No. 9319, which modifies Law No. 11416-d on tax increases, also referred to as the "resource" tax increase.
Key Provisions of the Tax Increase Law
The original Law No. 11416-d, signed by President Volodymyr Zelensky on November 28, 2024, introduced several significant tax changes aimed at increasing government revenues to support national defense and other critical areas. The main provisions include:
Military Levy Increases:
- Individuals: The military levy on income (salaries, dividends, additional benefits, etc.) will rise from 1.5% to 5%.
- Individual Entrepreneurs:
- Groups 1, 2, and 4: A mandatory military levy of 10% of the minimum wage per month.
- Group 3: A military levy rate of 1% of income.
Income Taxes for the Financial Sector:
- Banks: An income tax rate of 50% for 2024.
- Non-Banking Financial Institutions (Except Insurers): An income tax rate of 25%, effective from January 1, 2025.
Postponement and Legislative Process
Initially, the law on tax increases was slated to be published online on November 30, 2024, with an effective date of December 1, 2024. However, due to strategic considerations and potential impacts on businesses, the publication was withdrawn on November 29, 2024, and rescheduled to November 30, 2024. Consequently, the effective date remains December 1, 2024 for most provisions, except for the new taxation for individual entrepreneurs of the third group, which has been deferred to January 1, 2025.
Implications for Businesses and Entrepreneurs
For Individual Entrepreneurs of the Third Group:
- Delayed Taxation: The new military levy of 1% of income will now commence on January 1, 2025, providing additional time for these entrepreneurs to prepare for the tax changes.
- Compliance Adjustments: Entrepreneurs should plan accordingly to ensure compliance with the new tax rates starting next year, adjusting their financial strategies to accommodate the increased levy.
For Other Groups and Financial Institutions:
- Immediate Impact: The military levy increases for individual entrepreneurs of groups 1, 2, and 4, as well as the substantial income taxes on the financial sector, will take effect as originally planned on December 1, 2024.
- Financial Planning: Businesses and financial institutions must reassess their financial projections and operational budgets to account for the higher tax burdens.
Government Rationale and Strategic Goals
Deputy Minister of Economy and Trade Representative Taras Kachka emphasized the necessity of these tax reforms to avoid misunderstandings during customs clearance of exports and to simplify business conditions for exporters. The overarching goal is to:
- Enhance Revenue Generation: Boost government revenues to support military and national defense initiatives.
- Promote Economic Stability: Ensure that the tax system contributes to the resilience and sustainability of Ukraine's economy during ongoing conflicts.
- Support Critical Sectors: Allocate resources effectively to maintain and develop strategic sectors vital for national security and economic growth.
Broader Economic Context
The "eWork" grant program and the new state property policy are part of Ukraine's comprehensive strategy to modernize its economy, attract foreign investment, and enhance corporate governance standards. These initiatives, supported by international partners such as the World Bank, IMF, and OECD, aim to create a robust economic framework capable of sustaining growth and resilience in the face of geopolitical challenges.
Future Outlook
With the postponement of the new taxation for individual entrepreneurs of the third group, the Ukrainian government demonstrates flexibility in its fiscal policies, balancing the immediate need for increased revenues with the practical considerations of business operations. As Ukraine continues to navigate its path toward economic recovery and stability, these tax reforms play a crucial role in funding essential national priorities while supporting the growth and sustainability of its entrepreneurial sector.
Conclusion
The Verkhovna Rada Committee's amendment to delay the new taxation for individual entrepreneurs of the third group until January 1, 2025, reflects Ukraine's adaptive approach to fiscal policy amidst ongoing challenges. While the majority of the tax increases proceed as planned, this postponement provides critical relief to a segment of the entrepreneurial community, allowing them to better manage the transition and prepare for the forthcoming tax obligations. As Ukraine implements these comprehensive tax reforms, the support from international partners and strategic government initiatives will continue to be pivotal in fostering a resilient and thriving economy.
