Expert Urges Higher Luxury Taxes in Ukraine to Protect Vulnerable Citizens

The economic crisis caused by full-scale hostilities presents Ukraine with complex challenges in protecting the most vulnerable segments of the population. Tax policy is becoming a key tool in combating poverty and maintaining social stability.

VAT Diversification as a Tool for Social Protection

Renowned economist and financial analyst Oleh Kush has initiated the need to diversify the value-added tax (VAT) rate in Ukraine. According to him, standard approaches to taxation in wartime no longer work effectively and require immediate adaptation to harsh realities.

The essence of the proposal is to significantly reduce the tax burden on socially important groups of goods, such as basic foodstuffs and medicines, by setting a minimum rate of 5%. A similar step, previously proposed by Kharkiv Mayor and Head of the Association of Frontline Cities and Communities Ihor Terekhov, would allow Ukrainian pensioners and low-income families to save significant funds.

Finding Compensators and the Luxury Tax

The main issue in implementing such large-scale initiatives remains finding sources of compensation for the state budget, which loses part of its revenue from lower collections. The expert suggests introducing an increased VAT rate of 25% on premium goods and luxury items, including luxury cars and expensive brand-name goods.

As an international example, Kush cites the experience of Poland and other European countries that actively use differentiated tax rates to protect the least well-off citizens by lowering taxes on meat, vegetables, fruits, and eggs.

Government Plans and Tax Contradictions

Amid expert discussions, the Ukrainian government's draft state budget for the next year includes alternative initiatives, planning a general VAT increase of one percentage point — from 20% to 21%. This measure, according to officials, is intended to launch a vital business war-risk insurance program.

Contradictory Data

There are noticeable discrepancies between the approaches of the executive branch and the proposals of the expert community. While the Cabinet of Ministers chooses the path of fiscal tightening through a linear increase in the VAT rate for all categories of goods, economists insist on targeted support for the population and shifting the tax burden onto wealthy citizens through a luxury tax.