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Introduction of a Progressive Scale of Salary Taxation (Draft Law No. 7406)
The parliament, on the initiative of people’s deputies headed by Razumkov D.O., Draft Law No. 7406 was registered, which amends the Tax Code of Ukraine and the Law of Ukraine “On Collection and Accounting of the SSC” regarding the rules of salary taxation and accrual of the single social contribution.
According to the initiators of the Draft Law, its adoption will reduce the tax burden on salaries and provide significant support to employers and employees in wartime, which will help restore the economy and improve the socio-economic situation in the country.
Below we are considering the proposed changes:
- Personal income tax
Temporarily, starting from July 1, 2022 and during martial law, it is proposed to establish a progressive scale for personal income tax for income in the form of a salary (including basic and additional salary and other incentive and compensation payments):
◉ 9% – if the salary from one employer does not exceed 5 minimum salaries per calendar month (UAH 32,500).
◉ 18% – if the salary from one employer is from 5 to 10 minimum salaries per calendar month (UAH 32,501 – 65,000).
At the same time, the tax rate of 18% is applied to the amount of excess over the tax base defined in the previous paragraph. In other words, income in the amount of UAH 32,500 will be taxed at the rate of 9%, and everything that exceeds this amount will be taxed at the rate of 18%.
◉ 25% – if the salary from one employer exceeds 10 minimum salaries per calendar month (over UAH 65,001).
Similarly, the rate of 25% shall be applied to the amount of excess over the tax base specified in the previous paragraph. In other words, only the part of the salary that exceeds UAH 65,000 will be taxed at this rate.
Currently, the personal income tax rate on income accrued in the form of a salary is set at 18% regardless of the amount of an accrued (paid) salary.
- Single social contribution
It is proposed to regulate the accrual and payment of the SSC by the employer in a similar way:
◉ 11%, but not less than the amount of the minimum insurance premium (UAH 1,430) – if the amount of a salary does not exceed 5 minimum salaries per calendar month (UAH 32,500).
◉ 22% – if the salary is from 5 to 10 minimum salaries per calendar month (UAH 32,501 – 65,000).
◉ 29% – if the salary exceeds 10 minimum salaries per calendar month (over UAH 65,001).
The SSC rates of 22% and 29% will be applied to the amount of the excess over the tax base determined in the previous paragraphs on the same principle.
These rates should also be used when calculating the salary of individuals from sources outside the main place of work, regardless of the salary amount.
Currently, the single contribution rate is 22% of the salary, but not less than UAH 1,430 and not more than UAH 97,500.
It should be noted that the European Business Association has expressed its objections to the adoption of the Draft Law. According to the business community, such measures during the war are damaging for businesses that continue to work, support the country and employees, and pay salaries. It will be an especially sensitive matter for responsible business, which pays high salaries to qualified employees in a transparent manner.
Increasing over-regulation and growing tax burden can eventually lead to such negative phenomena as increased value of goods and services of trustworthy companies, shadowing of salaries and the economy as a whole, the likely loss of qualified personnel etc. Such actions will not help to achieve the economic recovery or reduce unemployment.
The Draft Law is currently being considered by the Main Committee on Finance, Tax and Customs Policy, which should provide its conclusions and recommendations on the results of assessment of the Draft Law.
If the law is adopted, the above-mentioned norms will enter into force from July 1, 2022, and they will be applied for the period of martial law only.
Lawyers and consultants of K.A.C. Group will be happy to advise on issues related to changes in the legislation in connection with the imposition of martial law, as well as provide comprehensive legal support.