Ukraine's parliament approves first wartime tax hikes

By Olena Harmash

KYIV (Reuters) -Parliament approved Ukraine's first major wartime tax increases on Thursday to shore up its finances as war with Russia drags on with no end in sight.

Yaroslav Zhelezniak, a lawmaker from the Holos party, said 247 of 450 deputies in the Verkhovna Rada had approved the increase.

Ukraine spends the bulk of its revenue on funding its army, and the current level of taxation has been insufficient to cover rising defence spending, which has boomed since Russia's full-scale invasion in February 2022, the finance ministry said.

The finance ministry said that the new level of taxation would bring 23.2 billion hryvnias ($563 million) to the budget this year and 141.1 billion hryvnias next year.

Foreign financial aid remains vital for Ukraine to be able to balance its budget in the coming year.

"All non-military state budget expenditures are financed exclusively with the support of Ukraine's international partners. These funds cannot be used to finance defence needs," the ministry said.

Since the start of Russia's invasion, Ukraine has received nearly $100 billion in Western economic aid, which helps to pay pensions, public sector wages and other social spending.

Kyiv needs another $12 billion by the end of 2024 to spend on defence. Next year's budget deficit is expected to total about $38 billion.

The new law includes an increase in war tax from 1.5% to 5% for residents, higher taxes for individual entrepreneurs and small businesses, a 50% tax on banks' profits, and a 25% tax on the profits of financial companies.

Iryna Geraschenko, a lawmaker from the opposition European Solidarity party, said the new taxes would apply retroactively from the start of October.

The legislation still needs to be signed by President Volodymyr Zelenskiy before it enters force.

In addition to the new taxes, the government has increased its borrowing on the domestic market and restructured Ukraine's foreign debt, saving $11.4 billion over the next three years.

(Reporting by Olena Harmash;Editing by Tom Balmforth, Kevin Liffey, Alexandra Hudson)