FINANCIAL CAPACITY OF TERRITORIAL COMMUNITIES UNDER MARTIAL LAW IN UKRAINE: MANAGEMENT CHALLENGES AND ADAPTATION

Abstract

The article examines the financial capacity of Ukrainian territorial communities and their adaptation to martial law conditions from 2022 to 2025. It analyzes the impact of Russia’s full-scale invasion on budgetary processes, ranging from sharp revenue declines in frontline regions to the revitalization of economic activity in rear areas. The study highlights the evolution of "military personal income tax" (PIT) from the onset of the full-scale invasion to its redirection to the state budget, as well as the influence this tax exerted on the development of territorial communities. The adaptation measures implemented by communities are explored, including the use of deposits, military domestic government bonds, support for business relocation, and competition for the placement of critical enterprises. The article posits and substantiates the hypothesis that the increase in community revenues from PIT in 2024 was enabled by legislative changes that facilitated the widespread reservation of workers at critical enterprises, compelling businesses and employees to emerge from the shadow economy. The mechanism of compensation for certain communities dependent on "military PIT" is investigated to mitigate the impact of its loss on their financial capacity. It is recommended to establish a fund to support frontline communities that have lost revenues, thereby ensuring their financial stability. Projections for 2025, based on the Budget Declaration for 2025–2027, indicate challenges related to regional disparities and budgetary constraints. The research emphasizes the coordination between local and central authorities to ensure stability and forecasts the need to refine budget legislation to strengthen the capacity of communities during and after the crisis. The novelty of the study lies in identifying and substantiating the significant role of management decisions in shaping new approaches to ensuring the financial capacity of communities amid the complex challenges of wartime.