Ukraine raises taxes for war
For over two years, Ukraine has been trying to repel Russian invaders. It's costly. Around 3.7 billion euros flow into the war each month. While the West is financially supporting the country, Kyiv cannot cover all the costs. Now, taxes have to be increased.
Each day of war costs Ukraine, according to its own figures, over 120 million euros. The monthly costs for security and defense were estimated by Ukrainian Finance Minister Serhiy Marchenko in an interview with RBK-Ukraine to be over 3.7 billion euros. The budget for 2024 is currently short by over 11 billion euros, which is set to be made up, in part, by tax increases proposed in a government bill.
Among the proposed changes is an increase in the military tax, introduced in 2014, from 1.5 to 5 percent, in addition to income tax. Additionally, car and jewelry purchases will be subject to 15 and 30 percent military tax, respectively. According to media reports, new car sales in Ukrainian cities have surged since the plans were announced.
Ukraine had initially planned defense spending of over 42 billion euros for this year, which is now set to increase by almost 30 percent. The country has been defending against Russian invasion for over two years, with more than half of its state budget funded by foreign loans and aid.
Currently, there are over 100 engagements with Russian troops, with the Kharkiv region and the cities of Prokhorovka and Torez in the Donetsk region being particularly affected, according to the Ukrainian General Staff.
Russia also resorts to tax increases
Russian President Vladimir Putin has also been tinkering with tax screws in an effort to secure additional revenue for financing the war against the neighboring country. Putin signed a series of changes to the tax code two weeks ago, including increases in income tax rates for high earners and corporate tax for companies. These increases are expected to bring in around 27 billion euros per year.
Finance Minister Anton Siluanov explained in May that these changes, referred to as "system reforms" in the country, aim for a "fair and balanced tax system." The additional funds will promote Russia's "economic well-being" and will be invested in various public investment projects.
Since the invasion of Russian troops into Ukraine in February 2022, state spending has significantly exceeded revenues. Russia recorded a budget deficit of around 33 billion euros in 2023, equivalent to about 2 percent of its GDP. For the current year, a deficit of about 1.1 percent is expected.
The proposed tax increases in Ukraine are aimed at closing a budget shortfall of over 11 billion euros for 2024, as revealed by Finance Minister Serhiy Marchenko. Similarly, Russian President Vladimir Putin has increased income tax rates and corporate tax to secure additional revenue for war financing, generating around 27 billion euros annually.
