The Verkhovna Rada plans to tax rich pensioners and judges and return unified social tax
12 March 2025 19:02
The Verkhovna Rada has registered a draft law on amendments to the Law of Ukraine “On the State Budget of Ukraine for 2025” regarding the specifics of paying military duty and the unified social contribution. It concerns the taxation of pensions, not ordinary pensions, but VIP pensions, as well as entrepreneurs who are to be obliged to pay at least the minimum unified social contribution. What is the reason for this and who exactly will be affected, we analyzed [Kommersant].
What does the draft law envisage?
- fiscal support for single tax payers, especially internally displaced persons, which will reduce government spending on unemployment benefits, leading to an increase in the number of individual entrepreneurs, contrary to the trend of their decline, which has been statistically observed since the beginning of 2025 after the increase in taxes and fees;
- the Pension Fund is expected to increase its revenues due to the suspension of the maximum unified social contribution base during martial law;
- the state budget revenues are also expected to increase due to the expansion of the tax base for the military tax on pensions (lifetime allowance) by the amount exceeding the maximum pension amount.
“From an economic point of view, this approach is, on the one hand, an indirect subsidy to increase self-employment, which entails many positive social consequences, and, on the other hand, offers additional sources of funding for the State Budget and the Pension Fund,” the authors of the draft law note.
It’s time for individual entrepreneurs to pay the unified social tax
According to the MPs, from March 1, 2022, until the termination or abolition of martial law in Ukraine and within 12 months after its termination or abolition, single tax payers have the right not to charge, calculate or pay the single social contribution (SSC) for themselves, but cannot include this period in their work experience for calculating the amount of the state retirement pension.
However, starting from January 1, 2025, single tax payers of the third group will have to pay, in addition to 6% of their gross monthly income (5% of the single 1% military fee), a unified social contribution that is set independently but not less than the minimum (UAH 1,760, regardless of income). Single taxpayers of groups 1-2 and 4 will pay 10% of the minimum wage (UAH 800, regardless of income) on a monthly basis.
On the other hand, Article 39 of the Law of Ukraine “On the State Budget of Ukraine for 2025” stipulates that under this law the maximum amount of the unified social contribution is twenty times the minimum wage, i.e. UAH 8,000. Thus, in 2025, individuals who receive salaries and other bonuses in excess of UAH 160,000 per month will be exempt from the obligation to finance the solidarity part of the Pension Fund of Ukraine from the amount of such excess. Individual entrepreneurs must pay the minimum unified social contribution even if they have no income.
VIP pensions and payments under the gun
The state budget also stipulates that the Cabinet of Ministers sets coefficients for pensions (pension payments) that exceed the maximum amount of 10 subsistence minimums (UAH 2,760 in 2025), but does not explain whether these coefficients are to be reduced or increased. However, as noted by MPs, the provisions of Article 46 of the Law on the State Budget for 2025 for some reason do not apply to the so-called “lifetime allowance” for judges. Currently, there are about 4,000 such persons who receive “judges’ lifetime allowance”, which is essentially a pension paid from the state budget (respectively, at the expense of taxpayers), and not from the Pension Fund.
And as of January 1, 2025, the average amount of a judge’s life allowance was UAH 99,737 per month, which is 17 times higher than the average old-age pension (UAH 5789) and more than 4 times higher than the maximum old-age pension (UAH 2,760) established for other citizens. In total, in 2024, the amount of judges’ lifetime pensions cost taxpayers more than UAH 4.787 billion.
Based on all of the above, MPs propose to adopt a law according to which
- during the legal regime of martial law and 12 months after its termination (abolition), to return the temporary principle of voluntary payment of the unified social tax for themselves by individuals – single tax payers (STPs), including internally displaced persons and Ukrainian citizens returning from abroad; not to apply the maximum amount of the unified social tax base to increase the revenues of the Pension Fund’s solidarity part;
- in 2025, introduce military taxation of pensions and other similar payments exceeding 10 subsistence minimums per month (from the amount of such excess), and extend this rule to the amount of lifetime allowances of judges and other recipients of “special pensions” – prosecutors, police officers, officials, etc. In addition to ATO/JFO participants and those who participated in the defense of Ukraine against Russian aggression, as well as pensions of family members of fallen defenders.
Taxes will bring billions to the budget
MPs have done the math, and it turns out that billions of budget funds can be saved by taxing “special pensions” and obliging all individual entrepreneurs to pay unified social tax. According to the Ministry of Social Policy, over UAH 88 billion of budget funds were spent on “special pensions” in just 9 months of 2024. Approximated for the year, it is UAH 117 billion 060 million. However, there are 160 thousand such pensioners in total, but 77 thousand of them are representatives of law enforcement and security agencies.
“Let’s assume that 2/3 of the law enforcement and security officials have the status of combatants (although it is doubtful), whose income is exempt from military duty.
Based on the fact that the number of persons entitled to receive a special pension (life support) is 108.6 thousand without the status of combatant, and the average monthly pension payment per beneficiary is UAH 73,163, the average amount of excess of the maximum pension payment will be UAH 49,553, and depending on the coefficient of increase in the military fee rate established by the Cabinet of Ministers (from 5% to 100% of the rate), additional state budget revenues will amount to UAH 269 million to UAH 5 billion 382 million per month.
Thus, depending on the policy of the Cabinet of Ministers, possible losses of Pension Fund revenues from the return of the rule of voluntary payment of the unified social tax by the “simplified taxpayers” will be fully compensated,” the MPs summarize.
And if individual entrepreneurs also start paying the unified social tax, this will be an additional replenishment of the budget. Let’s assume that in 2025, 2/3 of the number of individual entrepreneurs will work, which means 1 million 240 thousand. Each individual entrepreneur will have to pay the minimum unified social contribution (UAH 1,760) every month, so the additional revenues of the Pension Fund will theoretically amount to UAH 2 billion 182 million per month.
Military pensions cannot be touched
Former Social Policy Minister Andriy Reva believes this is the right decision. Because the maximum pension in the country is UAH 23,760, and everything above that is paid by those who have added it to themselves in courts.
“It is logical that amounts exceeding UAH 23,760 should be subject to a 5% military tax. This is normal. Moreover, the current economic situation in the country requires us to look for ways to save money. And since the law is not retroactive, meaning that the court-ordered pension supplements for cunning officials and security forces cannot be canceled, why not make them pay money for the benefit of the army,” says [Kommersant] Andriy Reva.
As for judges, this is a separate issue, because they do not receive a pension, but a special allowance for life. This is a little different. But they will not become poor either.
“The unified social contribution for individual entrepreneurs is their pension in the future. If they don’t pay it today, they won’t be able to claim a pension later. After all, no one has canceled the principle of insurance in Ukraine, and I generally believe that the approach to voluntary payment of the USC should be eliminated, it should be mandatory,” the former minister said.
But, as Andriy Reva emphasizes, we need to be careful with the military, because according to the law, about 500 million people receive military pensions. This is where we need to clearly separate them from other recipients of “special pensions.” The military should not be touched.
Author: Alla Dunina
