Decentralization: Reform Strengthens Community Budgets in Ukraine
The decentralization reform in Ukraine has been fostering the strengthening of local communities for 12 years, yet funding challenges remain extremely relevant in the context of war. The issue of income tax inflow from individuals (PIT) remains crucial for the financial stability of local budgets.
The decentralization process, initiated in 2014, aimed to create effective local communities through territorial organization of power. Despite achieved successes, the current Russian military aggression poses unprecedented challenges for Ukraine’s sovereignty and the financial resilience of communities. Taxation issues have become the center of discussions, as communities are forced to transfer a significant portion of their PIT to the state budget. Analyzing the situation, experts emphasize that retaining 64% of PIT in local budgets in 2026 could support communities in tough times.
However, the harsh situation for frontline regions, such as Donetsk or Luhansk regions, remains urgent. According to official data, the highest growth rates in revenues were recorded in Kyiv and Zakarpattia regions, but many communities are still struggling with the consequences of war, infrastructural destruction, and energy losses.
The Ministry of Finance has emphasized the importance of further decentralization reform, including the transfer of local tax administration to communities. This would enable increased revenues and strengthen their financial autonomy. Experts believe that implementing such changes would contribute not only to stability but also to the development of the regions’ investment attractiveness.
| Indicator | 2024 | 2025 |
|---|---|---|
| Total Local Budgets Fund | 451 billion UAH | 514 billion UAH |
| PIT in Local Budgets | Retained 64% | 64% with a conditional 4% targeted use |
| Transfers from State Budget | 195.4 billion UAH | – |
