Ukrainian government offers to allocate tax revenues for drone and weapons production

The Ukrainian government offers to direct the resources from personal income tax on payments to the military, which until now has been accumulated in local budgets, to the production of drones, weapons, and ammunition.

Prime Minister Denys Shmyhal stated at the extended meeting of the local and regional authorities congress that Ukraine could start using these revenues from the fourth quarter of 2023.

What is the problem?

According to the prime minister, no one has any doubts that the country should increase the production of its own combat drones, other types of weapons, and ammunition. This requires multibillion-dollar financing, but Ukraine cannot use funds from international partners and donors for these needs. Instead, it must rely only on its own resources, which are insufficient.

What is the solution?

The accounts of local government bodies accumulated ₴201.8 billion (over $5.4 million). A significant part of this money comes from the personal income tax from payments to the military. Since the duties of local bodies have not changed since the beginning of the war, and there are no additional mandatory expenses, these funds are accumulated in accounts where they lie as "dead weight."

"The amount of personal income tax paid during the Russian invasion increased 7.6 times. The expected revenue forecast for the current year is ₴83.6 billion. For the next year, it's ₴101.8 billion," Shmyhal said. "I'd like to remind you that in 2021, personal income tax from payments to the military amounted to only ₴13 billion, which went to the communities. Of course, the boost happened solely due to increased state spending on the defense sector." 

The prime minister proposed redirecting these revenues to the production of Ukrainian weapons during the fourth quarter and the next year.

How does it work?

The government will continue to support the solvency of local budgets through the instrument of horizontal equalization, reimbursing the communities with additional funding. Accumulated reserves from previously paid personal income tax from the military will be left at the disposal of the communities.

"The basic subsidy remains at the previous level — ₴21.1 billion. It is also proposed to keep the reverse subsidy — ₴14.1 billion. The resource of territorial communities will exceed the indicators of 2021 by ₴75 billion," the prime minister cited parameters of the 2024 state budget project.

This approach will make it possible to provide Ukraine's security and defense forces with 93.6 billion additional resources. 

"Almost 50% of this amount will go to the production of drones, and the rest will be used for the production of Ukrainian weapons and ammunition," said Shmyhal. "It will also stimulate the development of communities where weapons will be produced." 

Background

By September 15, the government plans to submit to the parliament the draft of the state budget for 2024, where the financing of the defense sector will be a priority. Prime Minister Denys Shmyhal said the government would focus on the salaries of doctors and teachers and social benefits. For next year, the authorities plan a two-stage increase in the minimum wage, indexation of pensions, financing of subsidies, and aid for IDPs.

Rubryka reported that the Ukrainian government has already invested tens of billions of hryvnias in the domestic military industry.

In June of this year, the Ukrainian defense industry produced more mortar and artillery shells than in the whole of last year.

It was also reported that Ukraine and Sweden agreed on the joint production of the CV-90 infantry fighting vehicles.