Ukraine's Constitutional Court rules it's wrong to tax pensions

The Constitutional Court of Ukraine (CCU) has ruled that the taxation of pensions in Ukraine is unconstitutional.

"The Constitutional Court of Ukraine has ruled to recognize the provision in subparagraph 164.2.19 of paragraph 164.2 of Article 164 of the Tax Code of Ukraine, which stipulates that the total monthly (annual) taxable income of the taxpayer includes the amounts of pensions (including the amount of their indexation accrued in accordance with the law) or a monthly lifetime allowance, is not in accordance with the Constitution of Ukraine," the court reported on its website.

According to the court decision, the approach of the legislator should be recognized as fair in the sphere of pensions, which provides a proportional ratio between insurance contributions and the assigned amount of pension payments, and the insured persons can freely exercise their right to a pension in full.

Read alsoAverage pension in Ukraine grows 35.7% in 2017"In the legislation on pension provision in Ukraine, this ratio is achieved by determining the dependence of the amount of pension on the duration of the insurance period and the amount of wages (income) of the insured person. That is why the introduction of its taxation, starting with a certain size, according to the Constitutional Court of Ukraine, violates the fair approach to calculating pension, since it leads to a decrease in its actual size, which is established taking into account the ratio between the duration of the insurance period and the amount of wages (income) of the insured person," the report says.

As reported earlier, 48 Ukrainian lawmakers asked the CCU to examine if the provisions of the law "On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine Regarding Tax Reform" and the Tax Code of Ukraine regarding the taxation of pensions and monthly lifetime allowance are in line with the Constitution of Ukraine.

The law on pension reform was adopted by the Verkhovna Rada on October 3 and entered into force on October 11, 2017. The document introduces the requirements for a minimum insurance period for retirement and raises pensions for 9 million pensioners by an amount varying from UAH 200 to UAH 1,000 per capita.

In addition, a 15% tax rate on pensions for 500,000 working pensioners was abolished under this law.