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Ukraine Moves Toward First Tax Hikes Since Russian Invasion

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(Bloomberg) -- Ukraine’s government seeks to increase levies on products ranging from fuel and tobacco to the sale of new vehicles to shore up its ailing budget in what is set to be the country’s first tax hike since Russia’s full-scale invasion over two years ago. 

The country’s Cabinet of Ministers has submitted two draft bills to parliament proposing changes to this year’s budget and amendments to the tax code, aiming to raise around 500 billion hryvnia ($12.5 billion) in additional revenue for urgent military expenditures. The move comes amid a huge labor deficit and ongoing mobilization.

“The government suggests only the softest changes from all the possible options,” the finance ministry said in a statement. It added that Kyiv must become even more reliant on its own resources — raised by taxation and domestic borrowing — to resist Russia’s attacks. 

The statement said that three quarters of the required funds will come from internal borrowing and excess state budget revenues from the first half of the year and one quarter from taxation.

The highest tax rates will apply to a range of activities such as first-time registration of private vehicles (15% of the vehicle’s value) and the sale of jewelery (up to 30% of sale price). Real estate sales will also face a new 5% tax. The government estimates that these changes could bring 125 billion hryvnia to this year’s state budget.

The list of products subject to excise tax will be expanded and tax rates increased on carbonated water, fuel tobacco and soft drinks, which the government estimates could bring an extra 16.9 billion hryvnia to the budget. 

The military tax, which was introduced in Ukraine in 2014 as a key source of financing for the armed forces, is also to be increased for individuals from 1.5% to 5%.

Parliament is expected to start to debate the bills as early as this month.

 

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