On October 24, the "U-LEAD with Europe" Programme, in partnership with the "Polaris: Supporting Multilevel Governance in Ukraine" Programme, held a panel discussion on the impact of reallocating PIT to the taxpayer’s place of residence.

The discussion was attended by the leadership of the Verkhovna Rada, the Ministry of Finance, the Ministry for Communities and Territories Development, the Ministry of Economy, LSG associations, experts and MPs.

 

 

Experts conducted modelling to assess the impact of changing the PIT allocation mechanism on the fiscal capacity of territorial hromadas, using official data and results from a representative survey of hromada residents.

Soren Herbst, Head of the Multi-Level Governance Unit of U-LEAD, said:

“We believe that decisions on changes in PIT allocation mechanism must be based on relevant data and calculations and consider interests and capacity of different players”.

 

 

“The discussion on the distribution of local finances and improvement of the mechanism of personal income tax crediting is related to the finalization of the framework conditions for the functioning of local self-government in Ukraine,” emphasized Ieva Kalnina, Head of the Multi-Level Governance Component of the Polaris Programme.

 

 

Currently, about 40% of personal income tax goes to municipalities other than those where taxpayers work, which increases inequality: 70% of municipalities remain subsidized. Modeling has shown that PIT at the place of residence can increase revenues in 90% of municipalities and reduce the number of subsidized municipalities to 55%.

“We need to discuss all fiscal risks and find solutions to address them. This event is precisely what we need to define the next steps for improving the PIT allocation mechanism, especially considering the challenges in the context of EU integration,” commented Oleksandr Korniyenko, First Deputy Chair of the Verkhovna Rada of Ukraine.

 

 

Deputy Minister for Communities and Territories Development of Ukraine Oleksii Riabykin emphasized the importance of considering the solution to the personal income tax problem in the context of European practice and the objectives of the EU cohesion policy.

 

 

Discussion participants noted that the reform requires improvements to the registration system, measures to reduce informal employment, and compensatory mechanisms for hromadas that might lose revenue.

“This is a highly professional study on a very relevant topic. Allocating PIT to the place of residence rather than the place of work is absolutely the right policy direction. Not just because it's standard in developed countries, but because it’s fundamentally fair,” said Viktor Tymoshchuk, Deputy Chair of the Board at the Centre for Political and Legal Reforms and Senior Research Fellow at the V.M. Koretsky Institute of State and Law of the NAS of Ukraine. “Individuals—or employers on their behalf—should pay taxes to the hromada where they live and receive public services. This creates a clear political link: paying taxes, electing local authorities, and demanding effective use of those taxes. This is how political culture grows.”

Tymoshchuk emphasized that there should be a clear connection between public services, place of residence, and tax contributions: "Then services like preschool, school, and others are available in my hromada, funded by my taxes. If in another hromada, I would either pay separately for these services or other inter-hromada and state mechanisms would apply," he added.

Tymoshchuk also referenced comments from expert Tony Levitas, who noted that in Poland, transitioning PIT allocation to the place of residence significantly boosted hromadas’ motivation to act proactively by:

• Encouraging residents to register their place of residence within the hromada, ensuring accurate population records
• Supporting the reduction of informal employment, as taxes then directly benefit the hromada’s resources.

“This reform is closely linked with the actual reform of the most widespread administrative service—place of residence registration. It’s time to shift to a liberal, declarative model, where individuals can easily declare their actual place of residence without additional paperwork or proof of property ownership or official rental agreements. This is already being done for internally displaced persons,” Tymoshchuk suggested.

In the near future, experts plan to publish the study and modelling results for broader discussion.

As is known, the Cabinet of Ministers of Ukraine has officially approved an Action Plan for Reforming Local Self-Government and the Territorial Organisation of Power in Ukraine for 2024-2027. The plan includes analysing and developing proposals to improve the PIT allocation mechanism for local budgets based on taxpayers' place of residence.