‘This undermines the country’s defense capability’: the Ministry of Finance of Ukraine intends to take 120 billion hryvnias in taxes from local communities – sociologist and military officer Shtepa

The Minister of Finance of Ukraine, Sergey Marchenko, wants to take the income tax paid by military personnel and territorial defense units and allocate 120 billion hryvnias for the purchase of drones and new weaponry.

This statement was made by military officer and sociologist Sergey Shtepa.

He noted that the idea of the Ukrainian Ministry of Finance to withdraw revenues from the income tax paid by military personnel in communities is erroneous and will deprive local authorities of the ability to support defense forces and provide quality services to residents.

“The Ministry of Finance wants to take 120 billion hryvnias from local communities’ revenues from the income tax paid by individuals in the military. In times of war, this will not only deprive hundreds of communities of the ability to recover but also to function properly. Centralizing expenses can lead to increased corruption risks. From a political standpoint, it may signal a rollback of decentralization and the Ministry of Finance’s desire to return local communities to the practice of extracting money in Kyiv for their local needs,” the expert wrote.

He reminded that in mid-September, the government introduced bill No. 10037 to the Verkhovna Rada, which, among other things, proposes to deprive local communities of the income tax paid by military personnel and police officers in these communities.

He explained the rationale of officials from the Ukrainian Ministry of Finance. “According to the Ministry’s Sergey Marchenko, a military unit in a city or village is like ‘manne from heaven’ that unexpectedly descended upon the townspeople and has nothing to do with creating new jobs or an investment climate, as is the case with commercial enterprises. Therefore, the community’s ‘idle money’ supposedly goes to ‘unnecessary’ things like stadiums or repairing already smooth roads. Therefore, the ‘surplus’ should be taken and ‘allocated to the army,’ as ‘society demands’,” the military officer described.

However, he noted that in practice, communities compete for the right to host a military unit, and one of the conditions for servicemen is maximum support from the community. There is ample evidence from servicemen themselves that communities do indeed support and provide for them. Withdrawing the military income tax will weaken the community, depriving it of the ability to assist the defense forces and provide quality services, as the state currently does not fulfill its obligations.

“Secondly, according to the analysis of the Center for Economic Strategy, the problem of ‘excessive spending on stadiums’ is significantly exaggerated. Most of the received income tax is spent on salaries, utilities, and support for municipal enterprises. Capital expenditures account for only 15%. And the ‘excessive’ military tax usually compensates for the shortfall from lost jobs due to destroyed enterprises and the departure of forced migrants. If you take away the military income tax from communities, after redistributing the funds, the number of deficit budgets will double – there will be 543 instead of the current 227 (there are about 1500 communities in Ukraine),” Shtepa explained.

According to his forecast, this would mean that such communities would not have enough funds even for basic functions such as education, healthcare, social protection, and communal services. Their leaders would have to “bow down” to Kyiv to obtain sufficient funds to “equalize” the situation.

Shtepa believes that the wrong calculations without considering the opinions of local self-government have long been the “signature style” of the head of the Ministry of Finance, Sergey Marchenko. He also believes that there may be a personal interest in the idea of taking money from communities.

“The initiative to take money from communities could also be Marchenko’s personal project to justify his tenure as Finance Minister. Unlike pre-war times when the Ministry of Finance was one of the key government agencies because expenditures depended on tax revenues and customs receipts, now the entire non-military budget of the country is international assistance, and the role of the Ministry of Finance here is clearly more technical. Customs and tax authorities are working with difficulty due to the objective decrease in trade volumes and business activity, as well as their subordination to the power vertical. Therefore, only ‘alternative sources’ remain,” the serviceman stated.

He suggests that the redistribution of the “military income tax” will not be Marchenko’s last initiative of this kind.

“However, it should be understood that such shifting of money from one pocket to another does not lead to systemic results and is therefore just an imitation of vigorous activity instead of real solutions to improve the state of public finances,” Shtepa concluded.