Financial Stability of Communities: The Importance of Tax Retention
The Association of Ukrainian Cities (AUC) insists on retaining 64% of personal income tax (PIT) in local budgets, as well as support for reverse subsidies.
According to the AUC, this position has become relevant following the Cabinet of Ministers of Ukraine submitting the draft State Budget for 2026 to the second reading, which, according to AUC representatives, ignores the directives of the Verkhovna Rada and the needs of local self-government.
The decision made by the parliament on October 22, 2025, clearly stated that 64% of PIT should remain in the budgets of territorial communities. However, this provision has not been taken into account in the updated version of the state budget.
The AUC emphasizes that the elimination of the reverse subsidy could adversely affect the financial stability of rural and settlement communities, hence the association insists on keeping these funds locally.
The organization also draws attention to the issue of educational grants, believing that all accumulated surpluses should remain in the communities to cover their educational needs. Meanwhile, the government has not allocated 103.2 billion UAH for educational grants in the draft budget 2026, removed 150 million UAH for the "New Ukrainian School" program, and increased funding for the "Enhancing the Prestige of Work in Education" program from 53.8 to 59.8 billion UAH.
Additionally, the draft preserves a provision whereby the remaining funds of communities in temporarily occupied territories are managed by the state. However, the AUC insists that these funds should be used by municipalities - local councils or military administrations - specifically for housing construction for residents of those communities.
Prior to the second reading, the government planned an additional 13 billion UAH subsidy for 992 communities affected by the war and retained all other interbudgetary transfers agreed upon with the Association of Ukrainian Cities in the first reading.
According to the updated document, basic subsidies in 2026 will be distributed to 982 communities totaling 23.3 billion UAH, while 203 communities are required to pay a reverse subsidy totaling 15.5 billion UAH.
The AUC emphasizes that balanced funding for local self-government is key to community development and country recovery in wartime conditions.
Recall that on October 22, 2025, the Verkhovna Rada of Ukraine approved in the first reading the draft Law of Ukraine "On the State Budget of Ukraine for 2026", registry No. 14000, which instructed the Government of Ukraine to consider the inclusion of 64% of PIT in the revenues of local budgets, as proposed by the Association of Ukrainian Cities.
