TRANSFORMATION OF THE MILITARY TAX IN UKRAINE: ANALYSIS OF FISCAL EFFICIENCY, EXPENDITURE DIRECTIONS, AND WAYS TO OVERCOME SYSTEMIC DEFICIENCIES

Abstract

The article provides a comprehensive study of the functional evolution and fiscal significance of the military tax in Ukraine from its inception in 2014 to the forecasted indicators of 2025. The relevance of the study is driven by the unprecedented challenges to national security and the urgent need for sustainable defense financing under martial law. The author examines the theoretical foundations of military taxation through the prism of the social contract theory and fiscal federalism, justifying the central role of this tax in maintaining state stability. A detailed statistical analysis of revenue dynamics revealed a clear three-stage progression. The period from 2014 to 2022 showed steady growth, followed by a slight decline in 2023 due to migration and economic contraction. However, 2024 – 2025 marked a period of exponential growth, with revenues reaching a record UAH 163.6 billion. The study proves that this surge is a direct consequence of radical legislative changes, specifically the increase of the basic rate from 1.5% to 5% and the mandatory inclusion of individual entrepreneurs (FOPs) into the taxpayer pool. Particular attention is paid to the socio-economic consequences of these changes. The author provides evidence of a crisis in the small business sector, where the number of liquidated enterprises in early 2025 reached 57% of the total 2024 figures. The article categorizes the primary directions of fund allocation, including the financing of the Armed Forces (55%), medical rehabilitation of veterans, and the development of the defense-industrial complex. The research identifies critical systemic deficiencies: the lack of transparency due to the “dilution” of funds in the general budget, insufficient control over “shadow” wages, and administrative hurdles for relocated businesses. To address these challenges, the author proposes a modernization strategy involving the creation of a Special Earmarked Defense Fund and the full digitalization of tax reporting through personalized electronic cabinets. These measures are essential for strengthening public trust and ensuring the long-term fiscal resilience of Ukraine’s defense sector.