IMF warns Ukraine’s profit tax on banks risks financial stability
A 50% corporate profit tax on bank profits for the second year in a row contradicts the nature of a windfall profits tax, Trevor Lessard, the International Monetary Fund’s (IMF) Deputy Division Chief for Ukraine, said in an interview with Interfax-Ukraine in Washington published on Nov. 4.
"Windfall profit taxes are only for one year: you pay a political price for raising taxes, you get a lot of resistance... If you do a windfall profits tax more than once, people start to react and you start to lose confidence in the policy," he said, noting that it is not an effective solution.
The reintroduction of the tax could prompt banks to change their profit policies in anticipation of the next increase.
"It is very reasonable for them to prepare for the third time, because there is a possibility that it will happen again."
Ukraine's need for domestic revenue has been consistently high for many years. Given the political difficulties in overcoming parliamentary support for tax increases, "the best choice is to raise taxes in a long-term, efficient way that will pay off in the medium term, as opposed to a one-time tax increase that will still leave a revenue gap next year."
On Sept. 17, the Parliament passed the first reading of a bill that raises taxes by UAH 58 billion ($1,405,515,160) this year and UAH 137 billion ($3,319,923,740) next year.
The bill includes provisions to increase the military levy from 1.5% to 5%, raise taxes on FOP groups 1 and 2, introduce advance payments at gas stations, impose a 1% tax on all forms of FOPs in group 3, a 25% profit tax on financial institutions, and a 50% corporate profit tax on banks in 2024.
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