Ukraine is at a difficult crossroads: should taxes be raised during a war? This is a question that leaves neither businessmen nor ordinary citizens indifferent. Publicist Serhiy Fursa examines this issue in his article, breaking down unpopular truths about taxes and their impact on the economy.
Can tax increases be avoided?
There's only one unpleasant answer to that. No. You can't.
It's unpleasant because no one likes to pay taxes. It's not natural to like paying taxes at all. And no one especially likes it when taxes go up. At least among those who actually pay them. And it really has a bad effect on the economy. Raising taxes hurts the economy. Because no matter how you look at it, raising taxes is unpleasant and unpopular.
In Ukraine, a unique situation has developed since the beginning of the war. Taxes have not been increased yet. At the beginning of the war, tax breaks were even made. And this has happened for the first time in the history of mankind. When a country is at war, and such a large-scale war that affects its entire territory and requires mobilization, and taxes are not increased in the country. This does not happen. Because war is expensive. Very expensive. And it is always accompanied by tax increases. Even in Russia, the largest tax increase in history is now observed. Although we are all used to believing that Russia has some kind of infinite resources.
But a miracle happened in Ukraine. Thanks to the money of our Western partners. And the blow to the economy was much smaller. It was amortized. Macroeconomic stability was maintained. And people began to take it for granted. That you can have a war and low inflation. That you can have a war and an economy in the rear that is almost no different from what it was before the war. That you can have a war and not have a tax increase.
Anomaly began to be perceived as the norm. And so when it came time to raise taxes, society was not ready for it. Although, for example, if such steps had been taken in the first weeks of the war, they would have been perceived with understanding.
Why has this time come? Because war is expensive. And there is not enough money to finance the army. And our Western partners have one simple rule in their financial support. Their money goes to everything except defense financing. All social security, all salaries to officials are all the money of our partners. Therefore, by the way, you cannot take money from an official's salary and give it to the military. You cannot, even if it made sense. But you cannot. At the beginning of the year, experiencing a shortage of ammunition, the government spent more money on importing weapons than it put into the budget. And now it is faced with the problem that there may not be enough money even for the salaries of the military. It is unlikely that a country that is at war can afford this, arguing that it will harm business in the rear. Every time at such moments you have to ask yourself, what is the business climate in Mariupol or Bakhmut?.
Is it possible to avoid raising taxes? You can often hear that there is a shadow economy, there is a customs office, there is a lot of abuse in spending public money. And this is true. It all exists. But what is not there is a magic button, by pressing which you can stop corruption or get a reformed customs office from September 1. Any changes that can lead to an increase in budget revenues by reducing corruption should be systemic, and the result will be in 2-3 years. That's how it works. Unfortunately. Although I would really like it.
Does this mean that we don't need to reform the tax or customs system? No. We do. Moreover, to increase trust between society and the authorities, between business and officials, the inevitable increase in taxes must be accompanied by systematic steps to reform the tax and customs system, to reduce pressure on business. However, we must understand that these steps will in no way eliminate the need to find funds to finance the army here and now. We simply need to demonstrate political will for change, we need to demonstrate that the blow is not only on business. And we need to take those steps now that will reduce the need for additional tax increases in 2-3 years. And we don't need to invent anything. All the steps have long been prescribed in the IMF program.
But raising taxes is inevitable. And the question here is only what taxes should be increased. Business was very surprised when the tax pressure on it was chosen as the basis for budget revenues, when they saw a significant increase in the military levy and, in fact, the turnover tax, instead of a simple increase in VAT. Which would affect everyone, but equally. And it would not be exclusively pressure on white business. Because both gray businessmen and people from the white, transparent part of the economy, everyone spends money. Everyone consumes. And when spending it, they pay VAT. Proportionately to their own consumption. And as a result, the more you spend, the more you pay. Which is fair. But those who are already honest taxpayers will pay more for the military levy. Which is not very fair.
When the state asks to tighten belts, people should pay special attention to the issue of justice. And yes, during war, belt tightening cannot be avoided. But outright injustice can be avoided. And the synchronization of long-overdue reforms that should have been done 2, 5, 7, 15 years ago and raising taxes can be a demonstration that the government understands the importance of justice.
