PERSONAL INCOME TAX AS A KEY INSTRUMENT IN INTERGOVERNMENTAL RELATIONS AND THE FINANCIAL CAPACITY OF LOCAL AUTHORITIES

Abstract

This article examines the role of personal income tax in generating revenue for local budgets and ensuring the financial capacity of Ukraine's local authorities. It is established that personal income tax is one of the key revenue-generating taxes, providing funding for social infrastructure, housing and communal services, education, healthcare and other areas of local development. The current mechanism for allocating personal income tax to local budgets in accordance with the provisions of the Budget Code of Ukraine and the specifics of its functioning in the context of decentralisation are analysed. It is argued that the current system of tax allocation based on the employer's location causes significant disparities in the financial support of local communities, as a significant portion of tax revenues is concentrated in large cities and economic centres. The study examines the impact of internal population migration, the increase in the number of internally displaced persons, and the activities of remote structural units of enterprises on the process of distributing personal income tax among the budgets of local communities. It has been established that a significant proportion of taxpayers work outside their registered place of residence, which exacerbates the imbalance between the actual consumption of local services and the flow of tax revenues into the relevant budgets. The tax-raising capacity of local authorities has been analysed and the main challenges facing the financial equalisation of local budgets have been identified. European experience in the distribution of personal income tax and approaches to control based on taxpayers' place of residence have been summarised. The need to reform the mechanism for allocating personal income tax has been justified with a view to ensuring a fairer distribution of financial resources among communities, increasing the financial autonomy of local self-government and strengthening the state's budgetary security.