Support for the defense industry should not upset local budgets, - UNBA

It is necessary to create additional incentives for enterprises in the defense and industrial complex, while ensuring the balance of the budget system and the predictability of both revenues and expenditures of local self-government.

This conclusion was reached by the Committee of the Ukrainian National Bar Association on legal regulation of local self-government bodies following an analysis of draft law No. 13422-1 dated July 4, 2025 «On amendments to section VI «Final and transitional provisions» of the Budget Code of Ukraine on support for enterprises in the Defense and Industrial Complex», which was adopted by the Verkhovna Rada on July 16 as a basis.

In particular, the document proposes to change the procedure for crediting personal income tax (PIT). Currently, 60% of the total amount of this tax goes to the general fund of the territorial community budget at the place of registration of the tax agent. The draft law provides that in 2026–2028, 50% of this share (i.e., 30% of the total amount of PIT) will be credited to a special fund of the budget of the community to which the defense industry enterprise is relocated and will be used to create infrastructure and support relocation. It is proposed that these funds not be taken into account in the horizontal equalization of budget tax capacity.

The relevant UNBA Committee noted that the distribution of personal income tax will depend on the timing and procedure for adding enterprises to the OPC List. The issue of maintaining this list is planned to be regulated by another draft law — No. 13420, which grants significant powers to the heads of regional military administrations. However, it does not contain clear conditions and deadlines for including or excluding enterprises in relation to the budget year. This does not comply with the principle of legal certainty and, in the opinion of the UNBA, creates risks of destabilising Ukraine's budget system (in terms of filling and executing local budgets).

And the withdrawal of 50% of personal income tax from the budget of the community where the enterprise is registered may jeopardise the financing of protected items of the general fund. According to Part 3 of Article 142 of the Constitution, such losses caused by a decision of the state must be compensated from the state budget. However, the draft does not propose a compensation mechanism.

There is also no clear procedure for using 50% of the personal income tax that will go to the special fund of the community that accepts the enterprise. This may create difficulties for local self-government bodies, the treasury, and the defense industry enterprises themselves, for whose benefit the relevant funds are to be spent.

Separately, the UNBA drew attention to the fact that although the issues raised directly concern local budgets and interbudgetary relations, representatives of local government associations with all-Ukrainian status were not involved in their discussion. Therefore, their position was not examined or taken into account.

The full comments and proposals on draft law No. 13422-1 can be viewed at link.

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