Increase in personal taxation by Ukrainian authorities to help fund defence spending "is not surprising" says Prof Chris Bellamy commenting on Russian news speculation

Russian news agency RIA reports about a secret meeting by the Ukrainian Government to raise personal taxes but substantial support will be required from EU and US to fund defence expenditure says Prof Chris Bellamy

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It is about an increase of a quarter on the planned Ukrainian defence budget which, according to International Institute for Strategic Studies (IISS) was set at 25.8 billion hyrvnas for 2014, which, at the current rate, is about US$2.7bn.

(PRWEB UK) 23 March 2014

In a further twist to the unfolding developments in the wake of the referendum that returned Crimea to Russia, a leading Russian news agency has just reported that the Ukrainian Government is preparing to raise the basic rate of income tax from 15 to 23 percent.

Leading Russian news agency RIA reports that a source close to the Ukrainian Government confirmed that such a move is now imminent. The source did not want to be named.

According to RIA, a secret meeting held on 18 March attended by Arseniy Yatseniuk (Chairman), Alexander Turchinov (President), Andrew Parubiy (NSDC Secretary), Igor Tanuha (acting Defence Minister) and Alexander Shlapak (Minister of Finance) agreed that the country had to drastically cut all non-defence related expenditure but increase taxation of individuals in order to increase expenditure on defence.

The additional income would be used to finance the army and form a National Guard at a cost of US$700m.

Professor Chris Bellamy, a leading expert on Russian military affairs, observes:

“This move doesn’t come as any surprise to those who are watching these events with close interest. However US$700m is only likely to be able to cover immediate expenses associated with the conduct of the partial mobilization carried out in the country, ensuring the redeployment of troops to the Eastern and southern borders, as well as on the formation of the 20,000 National Gvardiya.

“In fact, US$700m corresponds to the semi-annual maintenance expenses of the Ukrainian troops taking account of a monthly money allowance, accommodation, meals, purchase of fuel, utilities and other items. The total amount that would need to be raised is more likely to be around US$1.3bn and the US and the EU could face a dilemma if asked to make a contribution for defence spending on this scale,” says Professor Bellamy.

“But overall it is about an increase of a quarter on the planned Ukrainian defence budget which, according to International Institute for Strategic Studies (IISS) was set at 25.8 billion hyrvnas for 2014, which, at the current rate, is about US$2.7bn. If they’re going to fight Russia, they’ll need more than that.”

Not all Ukrainians will want to see their disposable incomes squeezed by such an extent and the Ukrainian Government may be forced to rethink such a strategy as well as walking the fine line of keeping oligarchs in the region on side when indirect taxation of their profits is also under consideration.

-ENDS-

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