Taxation during military operations in Ukraine: an expert’s comment

During the war, despite the difficulties, it is extremely important to conscientiously pay the taxes that form the state budget.

“FACT” IA asked one of the heads of the Main Directorate of the State Tax Service in the Kharkiv region to comment on the current state of taxation in Ukraine.

How many funds in the form of controlled payments came to the state budget of Ukraine in 2024?

Analyzing the operational data on the controlled payments of the DPS, the state budget of Ukraine for January-April 2024 received 372.8 billion hryvnias. According to the indicators of the Ministry of Finance of Ukraine, the revenues of the general fund of the budget were exceeded by 112.6%.

In April 2024, receipts to the state budget from controlled payments of the DPS amounted to 69.1 billion hryvnias, and the general fund of the budget received 60.5 billion hryvnias. Overachievement of general fund revenue indicators is 9.5%, with additional revenues in the amount of 5.2 billion hryvnias.

In total, 372.8 billion hryvnias were received from the state budget for the period January-April 2024.

In 2023, 1 trillion 214 billion hryvnias of tax revenues were transferred to the consolidated budget (central and local together) from the State Tax Administration, excluding customs payments, this includes:

• VAT (including budget compensation) on goods (works, services) produced in Ukraine, which is 18% of total revenues;
• personal income tax and customs duties – 41%;
• goods tax – 9%.

Overall, households, as final consumers and income recipients, accounted for 68% of all government taxes, while businesses were the main tax intermediaries. At the same time, they paid:

• corporate income tax – 12%, mainly for state-owned enterprises and banks;
• land fee – 5%;
• The only tax is 5%.

Therefore, the total amount of taxes paid by businesses is 22% of total tax revenue, while property tax is 4% for both businesses and individuals, and the environmental tax is only 0.3%.

It should be noted that the distribution of tax revenues between households and enterprises is 68% against 22%.

Currently, the general situation with taxes in 2024 is as follows:

1. The situation with excise duties has improved significantly.
2. The increase in the balance of VAT revenue to the budget occurred due to a reduction in the amount of compensation during the export of raw materials.
3. The thesis about the gradual cancellation of VAT refunds for raw material exports has its own grounds, as it can increase tax revenues and reduce the redistribution of public funds in favor of several FPGs.
4. Stimulating population incomes through the defense sector contributes to a recirculating financial budget model, increasing domestic solvent demand and budget revenues.
5. Businesses pay almost no income tax, especially state-owned companies and banks.
6. Talks about reducing the income tax rate are considered ineffective.
7. The application of the mechanism of reduction of tax obligations due to investments in research and development works and innovations is considered more expedient.

A tax on “excessive profits”, as in the case of banks, would be a good step forward, and this experience should be extended to other types of enterprises that receive excess profits in wartime.

Rent taxes and environmental levies are negligible, despite the fact that industry is largely redistributive to the vulnerable and the extraction of natural resources.

The situation with real estate tax is anomalous. On the one hand, people pay for their apartments, and on the other hand, there is no effective tax on luxury items and large assets, moreover, taxes that should be paid on market value are paid on the basis of square footage. That is, an old three-room apartment in the suburbs pays much more taxes than a one-room apartment in an elite complex in the center of the capital, although its cost is many times higher. As a general rule, real estate tax is different from land tax, which is calculated in this way.

The amount of the minimum wage, established on January 1 of the reporting year, is multiplied by the percentage of the tax rate, determined depending on the type of real estate object. As of January 1, 2023, the tax rate was 6,700 hryvnias, and after January 1, 2024 – 7,100 hryvnias, while the maximum tax rate for 1 sq. meter cannot exceed 1.5%.

What are the changes in taxation during martial law?

As you know, the Verkhovna Rada adopted significant changes to the legislation, which provide for a significant relaxation of taxation for businesses during the period of martial law. In particular, the possibility of switching to a simplified taxation system for companies with a turnover of up to UAH 10 billion with the payment of turnover tax at the rate of 2% (later the limit of UAH 10 billion was removed, which gave the right to almost all enterprises, with some exceptions, to take advantage of this tax innovation ). It looks like an extremely liberal model of taxation for many companies, which is a forced anti-crisis measure of the state to stabilize the economy in wartime. A number of other tax rates have also been reduced, such as excise duty, VAT on certain goods, and land and rent taxes for certain lands have been abolished.

According to recent amendments to the PKU, village, city councils and military/military-civilian administrations have been given additional powers that are important to taxpayers. In accordance with Subsection 10 of Chapter XX, Clause 69.22 of Article 69 of the Code of Civil Procedure, regarding objects of immovable property (including real estate), other than land plots, which have suffered minor damage as a result of military operations, are fit for habitation/use and restored by carrying out ongoing repairs , village, city council, military or military-civilian administration has the following rights:

1. to establish preferential tax rates for certain types of immovable property, other than land, in the relevant territory by decision of the relevant local self-government body;
2. exemption from taxation of immovable property other than land.

The rates must be checked with the relevant decisions of the village or city council, on the territory of which the real estate object is located. These solutions can be found on their official websites.

It should be noted that the real estate tax rate is different from the land plot, it is determined by the relevant local self-government body based on the location of the real estate object. At the same time, in the conditions of martial law, the tax rate may be reduced by the decision of the local administration, as well as the military or military-civilian administration, for real estate objects that have suffered minor damage as a result of hostilities and are suitable for residential/commercial use.

Who can not pay taxes in 2024 for the tax year 2023?

1. Citizens living in the territories where hostilities are taking place.
2. Homeowners in temporarily occupied territories.
3. Ukrainians whose homes became uninhabitable due to the war.
4. Large families.
5. Single mothers raising orphans or children with disabilities.
6. ATO participants.

What real estate is not subject to taxation in 2024?

Tax on immovable property, other than a land plot, is not calculated and not paid:

1. For individuals and legal entities, residential and/or non-residential real estate (including their shares) located in the area of ​​the anti-terrorist operation or on the territory of Ukraine temporarily occupied by the Russian Federation.
2. Objects of residential and/or non-residential real estate owned by legal entities and/or individuals, including their shares, destroyed as a result of military operations and for which information about their destruction has been entered in the register of property rights.
3. Objects of residential and/or non-residential real estate in need of capital repair, reconstruction or restoration, damaged as a result of the conflict, owned by individuals and/or legal entities and data on the damage of which are entered in the property register.

It should be added that a mandatory condition for exemption from taxation of damaged or destroyed real estate for both individuals and legal entities is the entry of information about damaged or destroyed real estate into the register of property rights.

What to do if the tax office has assessed a tax that is not payable?

Payers of property taxes have the right to apply to the controlling body of the tax inspectorate to check the following information, namely:

1. objects of residential and/or non-residential real estate (including shares owned by the taxpayer);
2. total area of ​​residential and/or non-residential real estate owned by the taxpayer;
3. availability of the right to tax relief;
4. the size of the tax rate;
5. amount of unpaid tax.

Taxpayers who declared a tax liability for 2022-2023 for residential and/or non-residential real estate located in conflict zones temporarily occupied by the Russian Federation or on the territory of Ukraine by submitting a clarifying declaration for the relevant period in accordance with the procedure established of the Tax Code, have the right to adjust the amount of tax payable from the tax on immovable property other than land for the years 2022 and 2023.

In practice, the application of this tax benefit during the period of martial law for legal entities when calculating the tax on real estate, other than land, from real estate located in the areas of anti-terrorist operation, looks as follows:

Taxpayers apply the tax relief for objects located in the territories where hostilities are (or were) being conducted, approved in accordance with the Order of the Ministry of Reintegration No. 309 of December 22, 2022, and submit a declaration of clarification on the taxation of real estate, different from the land plot.

After submitting the declaration, the tax administration will conduct an internal tax audit and, based on its results, prepare an act on “arithmetic errors” in the declaration submitted by the taxpayer. This does not take into account changes to the Tax Code regarding the temporary exemption from payment of this tax.

As a result, if a taxpayer tried to apply tax benefits to real estate other than land, the tax authorities charged the tax itself and an additional penalty. Therefore, taxpayers were forced to appeal tax notices-decisions based on the results of tax audits in an administrative or judicial manner.

As practice shows, those taxpayers who took a risk and used their right to exemption from paying real estate tax during the conflict in the respective region will win.

With the adoption of amendments to the Tax Code of Ukraine and in accordance with the Tax Code of Ukraine, the tax notices-decisions issued in 2022 and 2023 regarding the payment of taxes calculated in accordance with Article 266 of the Tax Code for real estate on the basis of exemption from payment of tax. Taxes and fines assessed by administrative bodies in connection with the adoption of changes to the Tax Code of Ukraine and the resolution of the conflict between the competence of the Cabinet of Ministers of Ukraine regarding the determination of the list of territories on which hostilities were (are) being conducted or which are temporarily occupied by the Federation, and the competence of the Ministry of Reintegration, which determined this list by Order No. 309 of December 22, 2022, are subject to cancellation. Monetary obligations for fines are subject to cancellation. The list of such regions was compiled in accordance with Resolution No. 1364 of December 12, 2022, adopted by the Cabinet of Ministers of Ukraine on December 6, 2022.

Any overpayment of tax on immovable property, other than a land plot, arising as a result of the cancellation of a tax notification-decision, is credited only against future payments from this tax, and if the taxpayer has a tax debt on immovable property tax, other than of land and the overpayment is credited to the repayment of this debt.