Draft bill #10037 of September 12, 2023 

Sponsor: the Cabinet of Ministers of Ukraine 

Status: under consideration by the Budget Committee of the Verkhovna Rada of Ukraine 

Who is affected: local governments (1469 territorial communities), the Ministry of Finance, the Special Communications Service, and the Ministry of Strategic Industries 

Summary of the bill: 

  • from October 1, 2023, to December 31, 2024, the so-called “military personal income tax” (PIT) will be allocated to the Special Communications Service and the Ministry of Strategic Industries to buy drones and weapons 
  • starting from January 1, 2024, sources of revenue of the state road fund will be used as the sources of revenue of the government budget 
  • it will be allowed to allocate unused funds from local budgets only for specific purposes, in particular for supporting security and defense forces, maintaining shelters, paying for utilities and energy, servicing and repaying local debts, etc. 

What is right: 

  • the security and defense sector will get an additional 200 billion UAH by the end of 2023 and during 2024. 

What is wrong: 

  • financial capacity of local authorities to implement effective local policies and decisions in their communities will be reduces. As a result, strategic and operational planning of local budgets, especially in frontline communities where military units are deployed, will be impaired 
  • the bill violates the principle of autonomous local budgets, guaranteed by the Budget Code and the Law of Ukraine On Local Self-Government. According to the latter, local governments have the right to independently decide how to use their budgets 
  • the military PIT is supposed to be included in local budgets for 2023, and if this change is approved, it will result in unforeseen consequences for some communities, especially before the heating season 
  • there is a risk that some communities will not have resources left to cover even their basic needs. 

Alternative solution: 

  • remove the provision on how the leftovers of local budgets should be distributed 
  • adopt draft bill #9559-д to grant local governments the power to fund security and defense needs 
  • abandon the idea of transferring the military PIT to the government budget in 2023 
  • find a compromise formula for distributing the military PIT or allocate funding in the government budget for 2024 to compensate for the potential loss of the military PIT by local communities. 

Background information: currently, 64% of the PIT is allocated to budgets of local governments and 15% — to oblast budgets. Due to a significant increase in the number of service members, some communities receive larger volumes of PIT revenues. This extra funding could be spent inefficiently during wartime.