On 8 November 2023, Ukraine’s Verkhovna Rada adopted bill No. 10037 on so-called “military personal income tax” at its second reading and as a whole. How will this affect Odesa’s budget?

To understand the role these funds played in forming the city budget, we first need to establish what the situation was before the war.

Thus, in 2021, the city budget received just under 283 million hryvnias under revenue classification code 11010200, “Personal income tax on monetary allowances, monetary remuneration and other payments received by servicemen and rank-and-file and commanding personnel, paid by tax agents”. Of Odesa’s budget revenue excluding interbudgetary transfers, this amounted to 4.1% of all revenue.

In 2022, mobilisation and increases in both the overall size of the Armed Forces of Ukraine and payments to servicemen changed the situation radically. Revenue from “military personal income tax” increased almost fourfold to 1.07 billion hryvnias, accounting for 14.1% of budget revenue excluding interbudgetary transfers. But because non-essential spending was significantly restricted, the city was unable to spend all the money. And in the balances carried over from previous periods, as Zelenyi Lyst previously reported, more than 1.4 billion hryvnias remained from 2022, which is more than the “military personal income tax” received in 2022. This takes into account the additional allocation of more than 1.1 billion hryvnias to early repayment of loans.

For 2023, as of the end of September, “military personal income tax” revenue of 1.3 billion hryvnias was planned. This accounts for 12.1% of planned revenue for Odesa’s budget excluding interbudgetary transfers.

How critical would losing this amount be for Odesa?

Under the adopted bill, the reverse subsidy will not be withdrawn from Odesa’s budget (these are funds that local budgets transfer to the State Budget to equalise the tax capacity of territories). In 2023, it amounts to 231.3 million hryvnias. In effect, they want to take from Odesa’s budget into the State Budget only the funds that Odesa’s budget began receiving because of the increase in the size of the Armed Forces of Ukraine and in payments to servicemen after the full-scale invasion. The amount in question is around 1 billion hryvnias. Zelenyi Lyst has already analysed both the special and the general funds of Odesa’s budget, showing that non-essential spending in 2023 is considerably greater than that 1 billion hryvnias.

In our opinion, this law poses no threat to the city’s functioning financed by the city budget. It merely curbs appetites for whims such as relaying paving stones, asphalt, pipes and so on. In addition, spending under the guise of being “for the Armed Forces of Ukraine” on repairs to court and prosecutor’s office buildings, as well as for other law-enforcement and security bodies, must stop! First, such an initiative by mayors can be regarded as bribery; second, the courts and law-enforcement and security bodies have their own state funding.