Changes in the distribution of personal income tax revenue as a challenge for the system of financial equalization of local budgets in wartime conditions

Abstract

In the conditions of the decrease in economic activity in the war with Russia, the personal income tax on military personnel’s allowances was a significant source of local budget revenue for many territorial communities. Its volume increased due to the increase in the number of military units and military personnel, and the increase in the level of their salaries. Such trends increased the horizontal budget imbalances. The article aims to analyze the changes in the distribution of personal income tax revenue in the context of its impact on the revenue capacity of local budgets, as well as to develop proposals for improving the system of financial equalization in Ukraine in wartime conditions. The article analyzes the local budget imbalances caused by the uneven distribution of local budget revenue from the personal income tax on military personnel’s allowances. The specifics of the equalization system in Ukraine are clarified. On the one hand, it is tied to one tax – personal income tax, on the other hand, the dependence of local budgets on personal income tax is significantly higher than in other countries. The influence of the decision to redirect personal income tax on military personnel’s allowances from local budgets to the state budget on the financial equalization system is examined, and the question of the fairness of the current equalization system in Ukraine is raised. Various options for the distribution of revenue from personal income tax on military personnel’s allowances are analyzed, and the necessity and importance of implementing the mechanism of crediting personal income tax to local budgets by place of residence, and not by place of work of individual payers, is substantiated. This mechanism is effective and works in most foreign countries. In general, there are a number of options for implementing changes to the procedure for crediting personal income tax at the place of residence of an individual payer. The use of such experience makes it possible to develop one’s own version.