Every year, Ukrainian communities lose millions of hryvnias in local taxes. These losses range from 5% to 10% of total revenue — funds that could have financed kindergartens, schools, street lighting, road repairs, infrastructure, sanitation, and healthcare. The root cause lies in administrative issues: communities remain hostages to closed registries and restricted powers.
These are the findings of the survey «How limited authority of local self-government bodies in administering local taxes affects community revenues» conducted by the National Interests Advocacy Network «ANTS». The study included 48 territorial communities (city, settlement, and village councils) from various regions of Ukraine.
Key taxes and what they build
Local taxes are the foundation of municipal finance, accounting for over 30% of own revenues in most communities. The primary «breadwinners» remain land tax and single tax (87,5% and 85,4% respectively) and property tax (43,8%)
These funds directly finance vital sectors:
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Infrastructure (79,2%)
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Social services (62,5%)
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Education (43,8%)
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Healthcare (41,7%)
Where does the money go? Top 4 barriers
Despite 80% of communities reporting revenue growth over the past two years, they still fail to collect funds in full. The main challenges are:
- Lack of influence on tax debt
Over 83% of communities consider this a critical issue. Local self-government bodies lack effective mechanisms to deal with defaulters. - Limited access to tax registries
Only 14,6% of communities have full access to the information needed to monitor tax compliance. Without access to declarations and databases, it is impossible to verify assessments, estimate losses, or adjust budget planning. - Incomplete tax base
Many real estate objects and land plots remain off the records. Communities often cannot verify the legality of tax exemptions or influence large taxpayers. - Business re-registration
Enterprises operate within a community’s territory but pay taxes at their place of registration in another region. Consequently, the community provides the infrastructure but receives no corresponding revenue.
Consequences for development: «shadow business» and blocked investments
Losing 5–10% of revenue severely limits investment potential. Without sufficient financial resources, communities cannot provide the co-financing required for international grants or create favorable conditions for business.
Strategic planning. Lack of data on the tax base prevents accurate revenue forecasting, lowering the quality of medium-term budgeting.
Unequal competition. Lack of oversight allows part of the business sector to operate «in the shadows», putting honest taxpayers at a competitive disadvantage.
Dependence on subsidies. A weak local revenue base increases reliance on state budget transfers, limiting municipal autonomy and the ability to respond quickly to crises.
How to change the rules of the game?
Communities need tools for effective performance. Their primary demands include:
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Access to tax registries (81,3%)
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Influence over taxpayer registration (56,3%)
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Involvement in managing tax debt (39,6%)
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The right to initiate audits and influence large taxpayers (37,5%)
Expanding powers in tax administration is a matter of national reconstruction. During the recovery period, financially strong communities will be able to rebuild infrastructure faster, support businesses, create jobs, and improve the quality of life for their residents.
Without systemic changes in information access and municipal authority, the risk of losing millions of hryvnias every year will persist.
