Until recently Larysa Tolochko used to be happy about owning a three-room apartment in Kyiv. Now this property troubles her because of the new tax she may soon have to pay - even though the assessment in her case amounts to a mere $78 a year.
With changes to the tax code that came into effect on Jan. 1, local governments in Ukraine can introduce a real estate tax. It has to be paid once a year by owners of apartments the size of which exceeds 60 square meters. For houses, the taxable footage begins at 120 square meters.
In many Western nations, the United States included, real estate taxes are a normal part of the mix of government revenues need to sustain public services and benefits. But these taxes are usually imposed on the basis of market value, not square footage. Depending on the value of the home and the tax rate levied by the local government, taxes can easily cost the property owner thousands of dollars – or even tens of thousands of dollars a year for those with multimillion-dollar properties.
In Ukraine, property owners have been getting away with paying no real estate taxes since the collapse of the Soviet Union. Property taxes are used in the West not only to finance essential services — schools, sewers, roads and other government services — but also to discourage the speculation on properties that is rampant in Kyiv. In Ukraine, without the tax, many owners have no incentive to sell idle or vacant properties.
Ukraine’s government hopes that the tax will support local budgets.
If a person owns several kinds of property, 180 square meters is the cutoff size, while extra is taxable. The tax rate is defined by local authorities but can not be more than 2 percent of the official minimal salary, or Hr 24 ($1.5).
For Tolochko it means paying Hr 1,248 ($78) annually because she owns a 112 square meters apartment which exceeds allowed size by 52 square meters. A 52-year old employee of one of the state-owned institutes in Kyiv, she has a monthly salary that is a little more than Hr 2,000 ($125). She is afraid that the new tax won’t be easy for her to shoulder.
“A large apartment does not always reflect a financial status of a person,” Tolochko says. “I have a very low salary at the moment and I’m getting older. This tax can be paid by young people with a stable income.”
The tax isn’t obligatory yet. According to the law, local councils can choose to introduce it.
“This is the tax the revenue from which goes to the local budgets. If a certain local authority considers that they can solve the issues of community development, construction of roads, renovation of schools and hospitals in a different way rather than introduce taxation of property, it is their right,” Denys Fudashkin, deputy financial minister of Ukraine, said at a briefing on Jan. 6.
Depending on the financial status of the community, the local authorities can raise the non-taxable property size or introduce subsidies for low-income residents. There are exceptions from the law, small family homes and orphanages among them. According to Fudashkin, the average size of apartments in Ukraine is 56.6 square meters, which means that most of the flats won’t be taxed.
Meanwhile, the government counts on the new tax to be an extra source of funds. According to some estimates, the new tax, imposed both on the commercial and residential property, may bring additional Hr 3.8 billion ($237 million) to local budgets annually.
“For the owners of real estate new tax is an extra burden. However, it can become an effective way to fill local budgets,” says Olena Kasatkina, an associate at Asters law firm.
Some Kyivans also consider it a good initiative. Bohdan Kozhushko, owner of a 78-square-meter apartment in downtown Kyiv, says he supports the new tax and would pay even more. He may have to pay Hr 432 ($27) annually, if the tax is set at 2 percent rate.
“I think that this tax is necessary,” says Kozhushko, 57. “The country needs decisive steps to be made. But the retirees who live on a minimal pension have to be either exempted from the tax or subsidized.”
Tolochko thinks that the most important issue for tax payers is transparency of the way their tax money is spent.
“If we see that the revenues from this tax are spent on improving the quality of life of the community, then we will have a different attitude to that. Transparency is much-needed, so that people know that their money is not stolen,” she says.
Kyiv Post staff writer Anastasia Forina can be reached at [email protected]
