In its inflation report, the National Bank of Ukraine (NBU) considered the possible consequences of introducing new taxes, increasing existing rates and reducing tax benefits on inflation.
The document emphasizes that the financing of significant expenditures on security and defense requires the expansion of domestic financial resources of the budget. The NBU's basic forecast for 2024 takes into account mobilization measures, in particular the increase in excise taxes.
The NBU notes that such initiatives may have different consequences for inflation. For example, an increase in direct taxes, such as personal income tax, can reduce inflationary pressures by restraining consumer spending. This partially compensates for the impact of increased budget expenditures.
Risks and pro-inflationary factors
Increases in taxes on consumption, such as value-added tax (VAT) rates, can lead to higher prices for a wide range of goods and services. Such changes can be reflected in the consumer price index and affect annual inflation during the year, after which the effect gradually fades. In addition, the possible introduction of a military levy on corporate income could also have a pro-inflationary effect, as businesses would likely pass on the additional costs to consumers.
Prospects for raising taxes in Ukraine
The Ukrainian government is considering raising taxes on various goods and services, including fuel, tobacco products and new cars. This decision is part of the strategy to support the state budget in the conditions of the ongoing war. Minister of Finance Serhiy Marchenko said that in the conditions of war, raising taxes is a fair step to ensure defense financing. He also emphasized that a part of the population evades paying taxes, such as personal income tax (PIT), military duty and the single social contribution (SSC), choosing the minimum wage or setting up a business.
