The introduction of a 50% tax on bank profits for the second year in a row contradicts the principles of taxation and undermines confidence in the policy, as it is considered an ineffective solution. This position was voiced by Trevor Lessard, Deputy Head of the IMF Mission to Ukraine, in an interview with Interfax-Ukraine.
Lessard explained that taxes on extraordinary profits are usually introduced for only one year.
‘You pay a political price for raising taxes, you get a lot of resistance… If you introduce a windfall profits tax more than once, people will start to react and you will start to lose trust in politics,’ he stressed.
He noted that Ukraine will need to increase domestic revenues in the coming years. According to the IMF representative, ‘a long-term and effective tax increase will do more good than a one-time increase that leaves a budget deficit for the next year’.
Lessard also warned that the re-application of the 50% corporate tax could force banks to change their profit strategy in anticipation of similar steps in the future.
‘Itis very rational for them to prepare for the third time, because there is a possibility that it will happen again,’ he predicted.
As a reminder, Danylo Hetmantsev, Chairman of the Verkhovna Rada’s Finance Committee, said that the retroactive introduction of the bank profit tax was justified by exceptional circumstances.
However, the National Bank of Ukraine (NBU) sees risks in a repeated increase in the bank profit tax rate to 50% and plans to announce a number of measures to help banks cover the budget deficit by purchasing domestic government bonds without issuing them.
On October 10, the Verkhovna Rada passed in the second reading the draft law No. 11416-d, which provides for a UAH 58 billion tax increase this year and UAH 137 billion next year. The law increases the corporate income tax rate for banks to 50% in 2024 and raises the corporate income tax for financial institutions (except insurance companies) from 2025.
The draft law is currently awaiting President Volodymyr Zelenskyy’s signature.
