Less Tax, Less City: What the PIT Cut Means for Mykolaiv

Mykolaiv, like many Ukrainian cities, is rebuilding after large-scale destruction and at the same time looking for ways to maintain financial stability during the war. While the city is gradually restoring schools, hospitals and municipal infrastructure, a serious financial challenge remains: how to maintain the city when local budget revenues are declining.

That is why the Mykolaiv City Council is calling on the government and parliament to preserve the share of personal income tax for communities and provide additional support for the frontline areas.

NikVesti analysed the requirements contained in the appeal, why personal income tax has become a key issue for Mykolaiv, and what the authorities have to say about it.

Economy without ports

A few years ago, Mykolaiv was a powerful industrial and logistics centre. Four seaports — Mykolaiv, «Olvia», «Nika-Tera» and Dnipro-Bug Sea Commercial Port— accounted for up to 40% of the regional gross product. It was the port industry that generated the bulk of tax revenues, created jobs and ensured the city's sustainable development.

After the full-scale invasion began, the situation changed dramatically. Ports stopped working, and many businesses ceased operations or moved to other areas. Due to the occupation of the Kinburn Spit, Mykolaiv remains virtually cut off from the big water, and the resumption of shipping is still impossible.

«The port of Mykolaiv is the second largest in Ukraine in terms of cargo transshipment with a capacity of up to 40 million tonnes per year, almost half of which is grain. Since the beginning of the war, the port's operations have been virtually blocked and its infrastructure has been severely damaged. As a result, the region's economy is suffering significant losses — not only from the idle capacity of the port itself, but also from the loss of earnings by the region's enterprises, whose significant share of production costs is now taken up by complicated logistics,» the Mykolaiv Regional State Administration said.

The mayor of Mykolaiv, Oleksandr Sienkevych, cites the example of Monobank co-founder Horokhovskyi, who registered an IT company in Mykolaiv and now pays taxes here, having already generated tens of millions of hryvnias in budget revenues.

Privatisation of municipal property has become another source of revenue. As of August 2025, the budget has received 62 million hryvnias, and the total value of the objects put up for sale is significantly higher than the starting price. The mayor stressed that the process is transparent and the proceeds will be used for the city's defence needs.

In addition, to support entrepreneurs, the regional authorities are allocating up to 7 million hryvnias in grants in 2025. Last year, 27 companies received funding worth 4.7 million hryvnias. The city authorities do not provide grants, but from time to time they launch Google forms for entrepreneurs to share their problems — obviously, so that at least someone can hear them. At the same time, together with the UNDP, they run retraining courses and provide information about grants — as if information and money were just a click away.

Billions lost: how revenue decline affects frontline communities

The main part of local budget revenues in Ukraine is personal income tax (PIT). It is this tax that finances the salaries of public utilities, educators, doctors, transport maintenance, capital repairs, street lighting, territory cleaning, kindergartens and hospitals. Previously, this tax accounted for half of local budget revenues. And every percentage taken away from the community is a minus in the social sphere, a minus in the comfort of residents.

However, since 2023, the government has started to transfer part of the tax paid by military personnel directly to the state budget. For Mykolaiv, which has a much larger number of military personnel than most other cities due to its proximity to the frontline, this decision was particularly noticeable. As of 2024, the city had received about 2.7 billion hryvnias less than it should have, which is one of the highest figures among regional centres compared to the pre-war years.

In addition, in the draft State Budget for 2026, the government proposed to reduce the share of personal income tax retained by communities from 64% to 60%. For the country, according to the Association of Ukrainian Cities, this is a loss of about 16 billion hryvnias. For Mykolaiv, it is another minus tens of millions, which are spent on energy, cleaning the city, and maintaining educational and medical institutions.

The AUC calls the possible reduction in the share of personal income tax (PIT) a demotivation for communities to develop their economies.

«Frontline communities lost tens of billions annually due to the removal of «military» and «security» PIT from their budgets at the end of last year. The Parliament then took away up to 45% of revenues from some communities. This is not just critical, it has made some of them unable to provide for their own powers,» Oksana Prodan, advisor to the head of the Association of Ukrainian Cities, explains in a commentary to NikVesti.

At the same time, the effectiveness of the use of budgetary resources on the ground also requires attention. Some frontline communities, having limited funds, spent them on secondary needs instead of strengthening defence or security, which only intensifies the debate about the fairness of the current distribution of funds.

An additional burden is the withdrawal of reverse grants. For 2026, the government proposes to withdraw 18.4 billion hryvnias from 181 communities, including 110 rural and settlement communities.

A reverse subsidy is the withdrawal of funds earned by a community. If a community has no income, the state pays a basic subsidy to meet minimum needs, while declaring the need for economic development. At the same time, the funds are withdrawn as soon as the community has created conditions for business and entrepreneurship development.

«Thus, the withdrawal of the reverse subsidy demotivates local economic development and stimulates poverty,» explained Oksana Prodan.

The situation is further complicated by the country's overall budget deficit. In the draft state budget for 2026, local budget expenditures are set at the level of revenues — 873.8 billion hryvnias. However, given the public finance deficit of 2.4 trillion hryvnias (18.4% of GDP), Oksana Prodan predicts that there will not be enough money for all the subventions and subsidies provided for in the document.

However, a 4% reduction in the share of personal income tax actually weakens the financial capacity of communities.

«It’s a breach of the government’s commitment under the 2021 Memorandum with the Association of Ukrainian Cities. Then, at the initiative of President of Ukraine Volodymyr Zelenskyy, a moratorium on raising tariffs for heat and water supply was simultaneously introduced for сommunity residents with the state's obligation to compensate for the difference in tariffs to enterprises and an increase in the rate for local budgets from 60 to 64% of personal income tax,» recalled Oksana Prodan, Advisor to the Head of the Association of Ukrainian Cities.

Vitalii Kim, Head of the Mykolaiv Regional Military Administration, also commented on the possible cancellation of the reverse subsidy for 180 communities. He noted that most communities in the Mykolaiv Oblast are currently exceeding their budgets: out of 52 communities, only two did not fulfil the plan.

«There is such a story, because we have overfulfilment of the budget plan. At present, out of 52 communities, only two have budget underperformance, while all the rest are overperforming. Therefore, thanks to the work of everyone, many enterprises have returned to Mykolaiv region, and budgets at all levels are overfulfilled. This is also due to higher wages and social standards. That is why this issue is in reverse. We are defending ourselves, but not on the principle that we need more than anyone else, but on the principle of budget fairness, understanding the challenges of the next year,» said Vitalii Kim.

He added that the issue had already been discussed with the Chairman of the Verkhovna Rada's Finance Committee, Danylo Hetmantsev.

«He hears our position and will make the amendments we discussed with him to balance the situation,» he added.

The mayor of Mykolaiv, Oleksandr Sienkevych, noted that the budget execution as of August 2025 was 97% of the plan. He stressed that the loss of 4% of personal income tax in 2026 would be significant and could affect the financing of utilities and energy.

«Now we are only talking about a possible loss of 4%. Last year, this issue was also discussed, but no decision was made. These funds are earmarked, and their absence may affect the financing of utilities and energy, which is especially important for Mykolaiv. Our budget is already limited, so in case of a reduction, we will apply to the state for subventions,» commented Oleksandr Sienkevych.

Will it be possible to keep personal income tax at 64% in communities?

After a meeting of the Congress of Local and Regional Authorities under the President of Ukraine on 7 October, Vitalii Kim, head of the Mykolaiv Regional Administration, said in a commentary to NikVesti that the share of personal income tax for frontline communities would not be reduced — it would remain at 64%. This decision was supported by the Verkhovna Rada Budget Committee on 17 October, which recommended that the government maintain this proportion in the preparation of the state budget for 2026.

Oksana Prodan, Advisor to the Head of the Association of Ukrainian Cities, clarified that during the work of the government working group that prepared the main part of the draft state budget for 2026, an agreement on 64% PIT could not be reached.

«Unfortunately, there was no support for 64% in the working group. Now we need another round of approvals. We hope that the government will take into account the position of MPs and include the provision on 64% PIT in the revenues of communities in the second reading of draft law №14000,» she said.

At the same time, the government plans to support frontline businesses: the state will cover 80% of compensation for destroyed property, and loans for entrepreneurs will be available on favourable terms. This should make it more profitable and safe to start and restore businesses in the frontline regions.

«The state budget for 2026 is already in place, but it is not as optimistic as last year's. Social standards are rising, but less than inflation and expectations. As international assistance is decreasing, particularly in the military sector, this additional 4% of personal income tax is very important for us to provide for the defence forces,» explained Vitalii Kim.

Earlier, the head of the budget commission and a member of the Mykolaiv City Council, Fedir Panchenko, said that the city budget would be short about 200 million hryvnias by the end of the year.

Mayor Oleksandr Sienkevych said that the city authorities expect to receive a subsidy from the state, as they did last year. According to him, Mykolaiv is also applying for a subvention as a frontline community.

«We are counting on government support in the form of a subsidy. Last year, the city received a subsidy that was extremely important for us. We are grateful to the government for this decision and hope that this year Mykolaiv will receive the necessary assistance in the form of subsidies. In addition, we hope for a subvention from the state as a frontline city. We are currently working on this together with the Cabinet of Ministers and MPs. In addition, together with the city council members, we are working to optimise our work to raise funds for the budget from various sources. As you know, this year we supported the decision to privatise municipal property, which will also attract money to the community budget,» said Oleksandr Sienkevych.

Mykolaiv City Council is preparing 11 appeals to the Government on budget and taxes

Eleven appeals to the government, parliament and president have been submitted for the session scheduled for 30 October. In them, the MPs demand that funding for frontline regions should not be cut, that «military» personal income tax should be returned, and that the interests of local self-government should be taken into account in the state budget for 2026.

The appeals are addressed to Prime Minister Yuliia Svyrydenko, the Minister of Finance, the Speaker of the Verkhovna Rada, the Head of the Budget Committee, and MPs from Mykolaiv region: Artem Chornomorov, Ihor Nehulevskyi, Ihor Kopytin, Maksym Dyrdin, Oleksandr Haidu, Oleksandr Pasichnyi and David Arakhamiia.

In the documents, the city council emphasises that preserving 64% of personal income tax is critically important. The deputies ask the parliament to enshrine this figure in the Budget Code on a permanent basis, not temporarily, as it is now.

«To ensure that 64% of the personal income tax (PIT) paid on the territory of urban communities is credited to their budgets on a permanent basis», the document says.

The appeal also calls for the need to

• to return the transfer of «military» personal income tax to community budgets from 2027, and from 2026 — from police salaries;

• compensate communities for the losses from the withdrawal of this tax in 2024-2025, compared to the pre-war level of 2021;

• repay the state's debts on medium-term loans of 2009-2014, which are still hanging on local budgets;

• to provide subsidies to communities affected by Russian aggression, in particular, to the de-occupied and temporarily occupied territories.

Mykolaiv City Council proposes to improve the administration of local taxes and fees, in particular

• strengthen the work of tax authorities with local taxpayers;

• introduce a mechanism to compensate communities for losses through state tax benefits;

• update the methodology of monetary valuation of land to ensure fair revenues for local budgets.

• Increase the share of the road fund allocated to local budgets to 20 per cent.

Mykolaiv continues to rebuild infrastructure, support businesses and look for development opportunities even under the constant threat of shelling. However, the financial stability of the community directly depends on how much tax it is allowed to retain. Ahead is a long «budget autumn», when the Parliament will consider the draft State Budget-2026 in the second reading. And it will be clear then whether the communities will retain 64% of PIT or whether Mykolaiv will have to look for new ways to maintain the city in the face of war.