Last week, news broke about a government initiative aimed at significantly increasing revenues from the military tax. Officials are proposing not only to raise the current rate for individuals from 1.5% to 5%, but also to further expand its scope.
Among other measures, Ukrainian officials want to implement a military tax rate of 15% on the purchase of movable property (specifically, cars that are subject to first state registration in Ukraine). In other words, if government draft law No. 11416 is passed by the Verkhovna Rada, buyers will have to pay an additional 15% on the cost of a car when they purchase it from a dealership and register it for the first time.
These tax initiatives have greatly upset Ukrainians, who have flocked to dealerships to buy cars before the additional tax goes into effect. According to Oleg Nazarenko, the general director of the Ukrainian Association of Automobile Importers and Dealers (VAAID), during Friday and the first half of Saturday, buyers cleared out all available vehicles from showrooms. Dealerships are now empty as Ukrainians have tapped into their savings to purchase cars as quickly as possible to avoid the additional 15% military tax.
In the view of VAAID, these government initiatives could harm the industry. The effect of the military tax on car purchases may be minimal and short-lived. After the tax hike, sales are expected to plummet, and instead of boosting budget revenues, the government may face a decline. A decrease in sales will also reduce the current contributions (5%) to the Pension Fund that buyers currently pay. This is because a total tax burden of 20% when purchasing a vehicle is already substantial, and buyers will take a long time to adjust, according to VAAID.
Source: autoconsulting
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