Property taxes are set to increase this year after lawmakers on Dec. 24 raised the maximum amount that local authorities can collect.
Early in 2015, all city councils in oblast centers adopted a
property tax rate of between 0.4 and 2 percent of the minimum wage per square
meter. With the new ruling, they will be allowed to raise the rate to 3 percent
(Hr 41.4) per square meter.
“The trend will be that city councils will raise it,” said
Roman Drobotskiy, a senior associate at Asters law firm.
The tax applies to the owners of apartments over 60 square
meters or with houses over 120 square meters and will be paid annually. Only
the square meters above the limits are taxable.
Property taxes are intended to become the main source of
income for local budgets. However, similar to when the law was introduced in
January 2015, the unpopularity of the tax is an obstacle.
Homeowner opposition
Some property owners are against the tax.
Olha Hrynchuk owns two apartments in Ternopil with a total
area of 100 square meters. If the city council adopts the raise, she will pay
around Hr 1,600 annually.
“Do they think we are so rich that we can afford this?” she
asked. “I don’t think 100 square meters is a luxury.”
Iryna Kulynych, head of the economic policy department in
the Lviv City Council, supports the law, but says it should not be based on the
size of the property.
Tax by size, not value
“It is not very well executed because the tax is calculated
from square meters and not from the market value of a property,” she said.
In 2015, Lviv city budget raised Hr 21.4 million from
property tax, according to Kulynych. The money mostly came from companies, but
not from individual entrepreneurs or residents.
“I hope the results will be much better in 2016,” Kulynych
said.
Drobotskiy of Asters law firm doesn’t think the law has gone
far enough. The 3 percent rate is too low, he said, and the tax affects few
people, because the majority of apartments in Ukraine are smaller than 60
square meters.
To make the calculation more relative to the market value,
he advises to link the rate to the part of the city, making the city center the
most expensive, as well as to assess the condition of the building, namely the
year of construction.
Lviv tried doing just that. The local government divided the
city into three zones and developed different tax rates for each. Therefore,
the owners of an apartment in the historic center of the city, which falls
under UNESCO protection, pay 1 percent of minimum wage for each square meter
exceeded (Hr 13.8) while residents in outlying areas pay only 0.5 percent.
“It’s better to have everyone to pay (something), than to
make sudden moves,” Kulynych said, explaining the low rates that Lviv
preferred.
Highter luxury tax
The very large properties face additional tax rates.
Apartments of more than 300 square meters and houses with floor space of more
than 500 square meters will cost their owners Hr 25,000 per year. But according
to Drobotskiy, owners can falsely divide properties among relatives to avoid
tax.
He also argues that the luxury tax should vary based on the
area and its residents.
His argument is that two families living in one apartment
that is larger than 500 square meters is not the same as the 3,000-square-meter
estate formerly owned by one person, as it was with Ukraine’s ousted President
Viktor Yanukovych.
Local city councils may also give privileges or subsidies to
certain households with low incomes or retirees at its discretion. Kyiv’s city
council exempted soldiers who served in the war zone in Donbas, relatives of
those killed as well as relatives of people who belong to the Heavenly Hundred
and died during the EuroMaidan Revolution. Around 20,000 people will be exempt
from the tax in 2016 in Kyiv. Similar exemptions were adopted in several
Ukrainian cities.
By comparison, in the U.K. the property tax is already the
main source of income for local authorities. The monthly payment is made by
residents for various services, such as trash collection, roads, parks, schools
and street lighting, regardless of whether the household uses the services.
Each council sets the amounts according to the value of a
house within their district. So, a four-bedroom house and a two-bedroom flat in
a well-off part of London will be charged different rates, but it will be a lot
more than in other parts of the U.K. People on low incomes and benefits are
usually entitled to a reduction, or exemption, or they can challenge the amount
if they feel they are being charged too much.
