Government proposes to reduce personal income tax for communities by up to 60%: local budgets may lose ₴15.9 billion

Mykolaiv City Council. Photo: NikVesti

The government proposes to reduce the share of personal income tax that goes to local budgets from 64% to 60%. If the changes are adopted in the 2026 budget, communities across the country may lose 15.9 billion hryvnias.

This is stated in the draft state budget for 2026, according to NikVesti.

Currently, 64% of personal income tax goes to local budgets, the rest to the state budget. The Cabinet of Ministers proposes to reduce this share by 4%. For local communities, this means the loss of a key source of income, as PIT is the main tax revenue that provides funding for schools, kindergartens, hospitals, housing and communal services, and salaries for public sector employees.

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The consolidated budget of Ukraine will receive 903.1 billion hryvnias from the personal income tax and fee (PIT) . At the same time

• the state budget will receive 559.1 billion hryvnias,

• 344 billion hryvnias to local budgets.

At the same time, local budget revenues for 2026 are planned at 873.8 billion hryvnias, of which 838.7 billion hryvnias is for the general fund and 35 billion hryvnias for the special fund.

The Association of Ukrainian Cities has calculated that in the first year of the new rule alone, local budgets will lose a total of 15.9 billion hryvnias. The AUC emphasises that this will jeopardise the implementation of many development programmes and social obligations on the ground.

«The first point is to credit 64% of personal income tax on a permanent basis. This is a traditional proposal, and it is our first proposal, given that it applies to absolutely all territorial communities in Ukraine. The second point is to suspend the withdrawal of reverse subsidy funds from the budgets of territorial communities until 2026. It is planned to withdraw them from almost 200 communities, including 127 rural and settlement communities. As this year of 2025 has shown, the situation is very difficult, budgets are in deficit, they are forced to cut all expenditures, which directly affects the quality of public services,» said AUC Executive Director Oleksandr Slobozhan during budget consultations held by the Ministry of Finance of Ukraine to prepare the draft state budget for 2026.

In addition, the draft law proposes horizontal budget equalisation: a basic subsidy of 27.5 billion hryvnias for 1,022 communities, and a reverse subsidy of 18.4 billion hryvnias for 181 communities. However, the AUC emphasises that the reverse subsidy funds should remain in the budgets of communities.

«The next point is to keep the reverse subsidy funds in communities' budgets. This stimulates local economic development. Previously, leaving the reverse grant has shown a positive effect on the economy of communities,» added AUC Executive Director Oleksandr Slobozhan.

We remind you that discussions on the distribution of personal income tax have been going on for several years. Local governments have repeatedly called for the majority of the tax to remain at the local level so that communities have the resources to recover and develop in the face of war.

What about military PIT?

As you know, in 2024, the government transferred a portion of the military's personal income tax (PIT) from local budgets to the state budget. Previously, 64% of this tax remained in the communities.

The mayor of Mykolaiv, Oleksandr Sienkevych, reported that due to the withdrawal of «military» PIT, the city lost 2.7 billion hryvnias in 2024, while priority expenditures decreased by 1.2 billion hryvnias.

According to the Association of Ukrainian Cities, less than half of the withdrawn funds were used for the needs of the military: out of 77.3 billion hryvnias, only 32 billion hryvnias was spent on personal income tax.