The Association of Ukrainian Cities (AUC) has called for retaining 64% of the personal income tax (PIT) and reverse subsidy funds for local hromadas (communities) during the preparation of the 2027 state budget bill for the second reading. According to the association, this is necessary to prevent municipalities from facing bankruptcy. This was reported by RBC-Ukraine, citing a statement from Oksana Prodan, advisor to AUC head Vitali Klitschko.
What is a reverse subsidy and why is it controversial?
Oksana Prodan explained the reverse mechanism: it is a situation where funds are withdrawn from communities that earn money independently and do not require subsidies, because it is assumed they have "earned too much." In other words, the reverse subsidy is a redistributive mechanism where excess income, in the view of the central government, is redirected from wealthy communities to the general fund. It is this mechanism, according to Klitschko's advisor, that is becoming particularly vulnerable for local budgets in current conditions.
The risk of "artificial bankruptcy" for communities
The AUC's key argument is related to the state of the economy. Prodan noted that in recent months, a significant number of large businesses have been destroyed in Ukraine. These enterprises have effectively stopped paying taxes, but the reverse subsidy calculation, she says, is performed as if "they were still there" — based on previous, pre-crisis income figures. As a result, a gap emerges: real revenues to local treasuries are falling, while reverse obligations remain at the same level. "If reverse funds are not left in the hromadas, they will be artificially driven to bankruptcy. This must not be allowed under any circumstances," she stressed.
Support for the initiative in Parliament
According to the AUC, the association's proposals were supported by the majority of people's deputies. Previously, the Verkhovna Rada supported amendments initiated by the AUC to keep 64% of PIT and reverse subsidy funds in community budgets: 278 and 284 deputies voted for the respective proposals. Prodan thanked the parliamentarians who, she said, "understand the problem and have stood as a united front to keep funds in the communities." Now, the association notes, all municipalities are counting on the Ministry of Finance to consider the position of the AUC and the deputies when preparing the bill for the second reading.
Budget process timeline
The Verkhovna Rada considered Bill No. 16000 on the State Budget of Ukraine for 2027 in the first reading on October 28. The second reading is tentatively scheduled for November 23–26. Thus, there is a limited window for relevant committees and the Ministry of Finance to make adjustments, which, according to the AUC, would allow keeping both 64% of PIT and reverse subsidy funds in local budgets. The final decision will depend on whether it is possible to reconcile the association's position with the government's position in the final version of the document.
