The National Bank of Ukraine (NBU) in its inflation report considered the possible effects of introducing new taxes, increasing existing rates, and reducing tax benefits on inflation.
The document emphasizes that financing significant security and defense spending requires expanding the budget's internal financial resources. The NBU's baseline forecast for 2024 takes into account mobilization measures, including an increase in excise taxes.
The NBU notes that such initiatives can have different effects on inflation. For example, an increase in direct taxes, such as personal income tax, can reduce inflationary pressures by limiting consumer spending. This partially offsets the impact of increased budget spending.
Risks and pro-inflationary factors
Increases in consumption taxes, such as value-added tax (VAT) rates, could lead to higher prices for a wide range of goods and services. Such changes could be reflected in the consumer price index and affect annual inflation over the course of a 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 impact, as businesses are likely to pass on the additional costs to consumers.
Prospects for tax increases in Ukraine
The Ukrainian government is considering raising taxes on various goods and services, including fuel, tobacco products and new cars. The decision is part of a strategy to support the state budget in the context of the ongoing war. Finance Minister Serhiy Marchenko said that in times of war, raising taxes is a fair step to ensure defense financing. He also stressed that part of the population evades paying taxes, such as personal income tax (PIT), military levy and unified social contribution (USC), choosing the minimum wage or registering entrepreneurial activity.
