LOCAL FINANCE IN THE FINANCIAL SYSTEM OF UKRAINE UNDER WARTIME CONDITIONS AND RECONSTRUCTION: PROBLEMS AND PROSPECTS

Abstract

This article examines the characteristics and challenges of Ukraine’s local finance system during wartime, analyzing current issues in filling local budgets. It substantiates approaches to improving the financial support of local budgets under modern conditions, proves the necessity for a new stage of administrative and territorial reform based on EU experience, and outlines directions for optimizing personal income tax usage. The war has exacerbated financial resource shortages across diverse local communities, necessitating effective countermeasures. One approach entails implementing a new fiscal decentralization scheme based on pre-2015 state frameworks that excluded voluntary community consolidation. The study argues that Ukraine should adopt the non-voluntary consolidation experiences of newer EU member states, particularly Poland. Optimizing the distribution of locally collected personal income tax (PIT) remains a critical challenge. Under wartime conditions, the study proposes a balanced PIT distribution model: 50% of the municipal share (64% of total PIT) should remain within the community where the enterprise operates, while the remaining 50% should be allocated to the communities where commuting employees reside. Aligning with IMF recommendations, the article addresses debates on introducing a progressive PIT scale. It advocates for minimal rate differentiation during the war: maintaining the current 18% rate for individuals earning up to the national average salary, while increasing the rate to 20% for higher income brackets.