Parliament Backs 50% Tax on 2027 Profits Despite Pushback

Ukraine’s parliament approved a bill that would double the corporate income tax rate on bank profits, from 25% to 50%, in 2027. The measure is intended to bring more money into the wartime state budget. It passed its first reading with 265 votes, comfortably above the required 226.

A first-reading vote is an initial approval, not the final enactment of a law. Lawmakers must now revise the bill and vote on it again in a second reading. If that vote succeeds, the bill can be sent to the president for approval.

The proposal already appears in the draft 2027 budget, which expects Hr.38.5 billion in additional revenue. The National Bank of Ukraine opposes the move, warning that repeated taxation could reduce banks’ capital and limit future lending. The measure therefore remains politically advanced but legally unfinished.

A corporate income tax on bank profits is charged on a bank’s taxable earnings after allowable costs and expenses are deducted. It targets the money left from banking activity, rather than the full amount flowing through the institution. The article discusses this tax because Ukrainian banks have reported unusually high profits during wartime.

A tax on total revenue works differently. It applies to gross income before expenses are removed. For a bank, revenue can include interest and other income, while profit reflects what remains after funding costs, salaries, technology, branches, provisions, and other expenses. Taxing revenue can therefore affect a bank even when its final profit is small.

The proposed Ukrainian measure is a profit tax, not a tax on total revenue. Its effect depends on banks’ profits and capital, which the NBU says help support lending. In 2024, banks paid Hr.95.9 billion under the 50% rate.

The proposal would increase the corporate income tax on bank profits by 25 percentage points, from the permanent 25% rate to 50% in 2027. In percentage terms, that doubles the rate. The change would apply after several earlier decisions to impose or retain a 50% bank-profit levy.

The draft 2027 state budget includes Hr.38.5 billion in additional revenue from keeping the 50% rate. That is the government’s expected budget gain from the measure. The figure reflects the tax collected from a banking sector that has continued to report strong profits during wartime.

For comparison, the NBU estimated that banks would pay Hr.20 billion in windfall tax during 2026. The proposed 2027 revenue estimate is therefore Hr.18.5 billion higher. However, the bill still needs a second reading and presidential approval before becoming law.

Ukrainian banks earned unusually high profits because they made substantial returns from government securities during wartime. At the same time, lending was subdued, so banks were not relying mainly on rapid loan growth to produce those earnings. The combination helped create record profits even as the wider economy faced war.

The article reports that banks and the NBU did not initially oppose the 50% tax because banks were earning strongly from government securities and lending was weak. First Deputy Governor Serhiy Nikolaichuk said banks were generating tax revenue without really using it. This made the levy attractive as a source of public funds.

Conditions have since changed. Loans to businesses rose 30% year-on-year in 2025, while household loans increased about 36%. Banks still recorded a 29.9% return on equity, compared with an EU average of 9.4%, giving lawmakers a reason to pursue another levy.

Ukraine first imposed a 50% tax on banks’ 2023 profits in a law passed in November 2023. The measure was applied retroactively, despite the tax code requiring at least six months’ notice. The law then established a permanent 25% rate from 2024 onward, although the 50% rate returned for 2024 and again for 2026.

Under the 50% rate, banks paid Hr.95.9 billion in 2024, equal to roughly one-third of all corporate income tax collected that year. The levy therefore produced a major budget contribution. Lawmakers now point to those earlier collections as evidence that another higher-rate measure can raise significant funds.

The NBU and the banking industry were less opposed during the first round because lending was subdued and banks earned heavily from government securities. The central bank later warned that repeated taxation was no longer a temporary wartime measure. It now calls the policy unsustainable and opposes the new proposal.

A higher profit tax can leave banks with less money to add to their capital. Capital provides a cushion against losses and supports the expansion of lending. The NBU argues that Ukraine’s banking system must grow because its capital is already ten times smaller than Poland’s neighboring banking system.

The key mechanism is straightforward: banks pay more tax, retain less profit, and may have less internal funding for new loans or capitalization plans. The NBU says the extra levy would eliminate room for growth if imposed permanently. It previously postponed bank capitalization plans to spread the tax’s impact and avoid hindering lending.

The current picture is mixed. Business loans rose 30% year-on-year in 2025, and household loans rose about 36%. Yet the capital adequacy ratio declined from 17.3% to 16.4%. Independent economists also note that banks remain highly profitable, creating an ongoing dispute between immediate budget revenue and longer-term credit growth.

A bank’s capital adequacy ratio compares its available capital with the risks attached to its assets, especially loans and investments. A higher ratio generally means a larger cushion against losses. The ratio helps show whether a bank can withstand financial shocks without immediately threatening depositors, borrowers, or the wider system.

Capital matters especially during wartime because economic conditions can change quickly and borrowers may face greater difficulty. Strong capital can absorb losses and support continued lending. When banks retain profits, they can add to that cushion. A higher tax may reduce the amount available for capitalization, although it also provides money for the state budget.

Ukraine’s ratio declined from 17.3% to 16.4%, even while business loans grew 30% and household loans about 36% in 2025. The NBU says the banking system, already ten times smaller in capital than Poland’s, must grow. It fears a permanent extra tax could restrict that growth.