Main points
- The Ministry of Economy is discussing the possibility of introducing VAT for individual entrepreneurs, but this issue has now been postponed after negotiations with the IMF.
- Experts warn that new tax changes could lead to business fragmentation and make it difficult to de-shadow the economy.
The authorities have started talking about unpleasant changes for business / Collage of Channel 24, photo ucsc.org.ua
The Ministry of Economy stated that changes to possible VAT for individual entrepreneurs are intended to “level the playing field” for Ukrainian businesses. However, businesses are actually rebelling.
What does the Ministry of Economy say about possible VAT for individual entrepreneurs?
Minister of Economy, Environment and Agriculture Oleksiy Sobolev stated that the Ukraine Facility program, for which the Ministry of Economy is responsible, currently does not contain a direct requirement to introduce VAT for individual entrepreneurs, RBC-Ukraine writes.
At the same time, negotiations on updating the program are still ongoing, and MPs are also involved. The Minister acknowledged that business reacts negatively to the idea of VAT for individual entrepreneurs not only because of the tax itself, but also because of the complex administration of the system.
According to him, entrepreneurs are often even willing to pay more just to avoid excessive bureaucracy.
If you ask businesses now what they would choose – an additional tax or not changing taxes, but with more complicated administration, they will say: “let's pay more and continue to work on a simplified system,” says Sobolev.
Sobolev added that the Ministry of Finance is currently working on simplifying VAT administration. He also said that after negotiations with the IMF, they decided to temporarily postpone the introduction of VAT for individual entrepreneurs.
What does this mean for Ukrainians?
The Ministry of Economy's statements indicate that the government has not yet abandoned the idea of VAT for individual entrepreneurs, but is trying to make this process less painful for businesses. The main problem, which is recognized even by the government itself, is not only additional taxes, but also a complex VAT administration system.
In fact, the authorities are now trying to find a compromise between:
- requirements of international partners
- the need to fill the budget
- maintaining a simplified system for small businesses
This is also a signal that the discussion about the reform of individual entrepreneurs will only intensify in the coming years.
Will taxation of individual entrepreneurs affect the prices of goods and services?
Economist Oleg Getman, in a conversation with Channel 24, says that the most realistic option is that the tax bill will not come into effect in 2027, because there is no will in parliament for this. There is an assumption that it will either come into effect in 2028, or when Ukraine joins the EU.
Oleg Getman
Coordinator of expert groups of the Economic Expert Platform
If we assume that the new changes will come into effect in 2028 or some other year, then most individual entrepreneurs who fall under the threshold of over 4 million hryvnias will not switch to VAT. Only about 20-30% of all entrepreneurs can do this.
The thing is that an individual entrepreneur with an annual income of 6 million hryvnias will not spend a lot of money on administration, accounting, etc. within the framework of the new changes. It is easier for him in this situation to open another individual entrepreneur. In particular, in the name of his parents, brother or sister, or one of the pensioners.
Thus, it is not worth expecting that the prices of goods will increase sharply after the change in taxation. This will affect more those who will still pay VAT,
– predicts Mr. Oleg.
What are the risks of introducing new rules?
The new memorandum between Ukraine and the International Monetary Fund places a key emphasis on tax changes and the gradual transformation of the simplified taxation system. Oleg Getman, coordinator of expert groups of the Economic Expert Platform and associate expert of CASE Ukraine, wrote about this in a column for Delo.ua.
According to the expert, the document contains both positive provisions and potentially risky norms for business.
Among the key areas:
- gradual transformation of the simplified taxation system
- limiting the use of simplified codes by big business
- review of the list of “risky” activities
Hetman emphasizes that excluding certain areas from the simplified system could become problematic if areas that are critically important for small businesses fall under the “risk” category.
It is proposed to exclude “risky” types of activities from simplification. This is a risky point of the memorandum, because the types of activities necessary for simplification may fall under “risky”. This proposal should be worked out by the Cabinet of Ministers in an inclusive process, with the participation of leading business associations and economic think tanks, so that the changes are optimal – minimize “gray schemes” and do not harm honest microbusiness, – says the expert.
The expert warns that setting the threshold at UAH 4 million may have side effects for the market.
Among them:
- increasing business fragmentation
- attempts to conceal real turnover
- formal avoidance of VAT transition
In his opinion, this could make it difficult to de-shadow the economy if the rules are not sufficiently balanced.
How and when should individual entrepreneurs pay VAT?
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On March 19, the Ministry of Finance published a draft law on increasing taxes in Ukraine. It concerned VAT for individual entrepreneurs from January 1, 2027.
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VAT was to be paid by businesses with an annual income of over 4 million hryvnias. These individual entrepreneurs and legal entities, currently paying a single tax (simplified tax), were required to switch to VAT.