Main points
- Ukraine seeks to soften tax law, which is being demanded by the IMF, to receive more than $8 billion, offering alternatives for businesses.
- President Zelensky criticized the Minister of Finance for an agreement on unpopular taxes for individual entrepreneurs, and now an increase in the VAT income threshold to two or four million hryvnias is being considered.
Ukraine does not want to introduce a tax and offers an alternative / Collage of Channel 24, photo ucsc.org.ua
Ukraine is seeking to soften an unpopular tax law that the International Monetary Fund is demanding as a condition for receiving more than $8 billion. Several options are being offered that businesses may agree to.
Why did Ukraine change its mind about introducing tough taxes for individual entrepreneurs?
At the request of the IMF, all individual entrepreneurs of groups 2-3 under certain conditions were to become value-added tax payers, Bloomberg reports.
The Ministry of Finance is currently finalizing work on this bill, but it is opposed by President Volodymyr Zelensky, Prime Minister Yulia Svyrydenko, and many lawmakers.
The initial plan was for Ukraine to introduce VAT for entrepreneurs with annual revenues of over one million hryvnias (over $23,000). Although Kyiv initially agreed to the move , harsh public criticism prompted officials to reconsider their position.
Zelensky personally reprimanded Finance Minister Serhiy Marchenko for agreeing to such unpopular conditions. Marchenko's ministry now plans to soften the bill by proposing to raise the VAT revenue threshold to two or four million,
– the publication writes.
The Ukrainian authorities are leaning towards a fourfold increase, Bloomberg was told by David Arakhamia, who heads the Servant of the People faction.
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What is known about the changes for sole proprietors and the likely consequences?
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The draft law on VAT for individual entrepreneurs may come into force on January 1, 2027, allowing businesses to prepare. Then, individual entrepreneurs of the 3rd group with a limit of 1 million will become VAT payers, and their single tax rate will decrease from 5% to 3%.
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For one individual entrepreneur, this is over 60 thousand hryvnias of additional VAT payments per year (according to 2024 data). A transition period is provided for training and testing new systems, and the Ministry of Finance has said whether fines will be applied.
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The introduction of VAT for sole proprietors with a turnover of over 1 million hryvnias could lead to the closure of a third of them, and another third would go “into the shadows.” Small businesses opposed the initiative and proposed an alternative solution through the Union of Ukrainian Entrepreneurs.