“Does not comply with the Constitution”: the Rada’s legal department criticises the draft law on tax hikes

9 October 2024 15:54

The Main Legal Department of the Verkhovna Rada’s Secretariat has issued a number of comments on draft law No. 11416-d, which raises taxes. The parliament’s lawyers believe that the document does not comply with the Constitution of Ukraine in a number of provisions, "Komersant Ukrainian" reports

Thus, the proposed introduction of advance payments of personal income tax (PIT), corporate income tax and military duty, without taking into account overpayments for these taxes from previous periods, violates the principle of equality and non-discrimination of taxpayers. Also, according to the document, these overpayments cannot be refunded as overpayments, which further complicates the situation.

In addition, the proposal to set advance payments for exchange offices in euros rather than hryvnia contradicts the constitutional provision that the hryvnia is the only currency in Ukraine.

The draft law violates the principle of legal certainty and predictability of the law, as provided for in Article 8 of the Constitution of Ukraine. The Main Legal Department of the Verkhovna Rada, referring to the decision of the Constitutional Court, reminds that the law must be clear and understandable, and its consequences must be predictable.

The lawyers also criticised the retrospective application of certain provisions, in particular the increase in the military tax rate from 1.5% to 5%, which, if passed, will come into force on 1 October 2024. This is contrary to Article 58 of the Constitution, which prohibits the retroactive effect of laws, except for those that mitigate or cancel liability.

In addition, the draft law provides for an increase in the rate of military duty for all individuals, even though the Tax Code exempts combatants from paying it.

Another criticism from the Main Legal Department was the changes to the calculation of the minimum tax liability (MTL) for farmers. It is proposed to set the minimum tax liability at UAH 700 per hectare, and UAH 1,400 per hectare for land plots with at least 50% of the area under cultivation. Lawyers believe that this makes it difficult to correctly calculate liabilities.

Finally, the draft law instructs the Cabinet of Ministers to change the methodology of monetary valuation of land to take into account the impact of climate change on income from agricultural land. But this, according to lawyers, violates Article 6 of the Constitution of Ukraine, which establishes the separation of powers into legislative, executive and judicial branches.

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Provisions of the draft law:

increase of the military tax for the period until 31 December of the year in which martial law is terminated, namely: increase of the rate from 1.5% to 5% for personal income; establishment of the military tax at 1% of the income of single tax payers of group III; establishment of the military tax for individual entrepreneurs – single tax payers of groups I, II and IV at 10% of the minimum wage;
setting the corporate income tax rate for banks at 50% for 2024;
setting the corporate income tax rate for non-bank financial institutions (except for insurers) at 25% from 1 January 2025;
improving the proposed model for determining the amount of advance corporate income tax payments for petrol stations;
change of the tax period from quarterly to monthly for reporting on paid income in favour of individuals (for economic bookings) from 1 January 2025;
pegging the advance payment rate for currency exchange offices to the euro;
extension until the end of the martial law of the exemption for charitable aid received from the budgets of other states;
changes to rent in terms of PSO and crushed stone;
exemption from taxation of income received under the “Made in Ukraine” programme;
changes to minimum retail prices for wine;
changes to the minimum tax liability;
instructing the Cabinet of Ministers to develop a draft law on the transfer of the military fee to the special fund of the State Budget.