Parliament supports retention of local tax revenues for the 2027 budget

During the review of the 2027 State Budget project, the Ukrainian Parliament voted to retain 64% of Personal Income Tax (PIT) and reverse subsidy funds within local budgets. The initiative, promoted by the Association of Ukrainian Cities (AUC), received significant support from lawmakers, with 278 and 284 votes cast in favor of the relevant amendments. Municipalities consider this decision a critical condition for maintaining financial stability amid the ongoing war.

Risks of artificial bankruptcy

Oksana Prodan, advisor to the head of the Association of Ukrainian Cities, stated that the current mechanism for calculating reverse subsidies no longer reflects wartime realities. The reverse subsidy involves withdrawing funds from budgets of municipalities that possess sufficient tax capacity and do not require basic subsidies. However, the 2027 calculations are based on 2026 economic indicators, failing to account for the widespread destruction of large enterprises that previously provided significant tax revenues.

Irrelevance of old economic models

The core issue is that the withdrawal formula does not reflect actual business losses. Many enterprises that were functioning or profitable last year have since been destroyed or ceased operations. As a result, communities face a situation where the state plans to withdraw funds that local budgets objectively cannot generate. Oksana Prodan emphasized that such actions could push financially viable communities to the brink of bankruptcy.

Economic resilience and recovery

Retaining reverse subsidy funds at the disposal of local authorities is a matter of survival for municipalities that maintain economic activity in their territories. The ability of communities to attract investment and create jobs depends directly on their ability to manage their own resources. AUC representatives expressed hope that the Ministry of Finance will take into account the parliamentarians' position, which aims to prevent the failure of obligations at the local level.

Significance for the future

The parliament's decision to support the AUC amendments signals an understanding of the scale of the budget crisis. Currently, the issue of retaining funds in communities has moved beyond a local problem and become a factor of national economic stability. The final fate of these initiatives during the final approval of the 2027 budget will serve as an indicator of the state's ability to balance fiscal policy with regional needs during the recovery period.