The government and the Rada are arguing about taxes, for example, whether to introduce VAT for individual entrepreneurs

To cover this yearʼs budget deficit, Ukraine needs about $52 billion in external financing. Most of this money comes from the International Monetary Fund (IMF), the European Union, and the World Bank. But the partners are allocating these funds in exchange for reforms. One of their demands is to increase budget revenues. That is why the government has proposed requiring some individual entrepreneurs to pay value-added tax (VAT). This has caused a loud conflict between the government, parliament, and business, which fears that such an initiative will destroy the simplified system.

Ukraine cannot reduce its budget without external financing — from IMF, the European Union, and the World Bank

The key partner that everyone looks up to is IMF, and it will provide financing in exchange for reforms (explains CES economist Bohdan Slutsky).

To understand why the government even started talking about VAT for individual entrepreneurs, you should look at our budget. During the war, Ukraine spends most of its funds on the security and defense sector. In 2026, this was also enshrined in the state budget.

Domestic revenues and borrowings that the country collects itself will be directed primarily to the army: military salaries, weapons, ammunition, logistics, and combat readiness support. This accounts for almost 60% of all budget expenditures.

At the same time, the country must finance social payments: pensions, salaries for teachers and doctors, and restore infrastructure. Since its own funds are not enough for this, a large “hole” appears, which this year amounts to about $52 billion. It is these funds that we are asking our partners for.

The main donors to Ukraine are three structures — the International Monetary Fund, the European Union, and the World Bank. But it is IMF in this chain that is the key to everything. Although the Fund is the main creditor, its money alone will not save us: over the next four years we are to receive $8.1 billion from it, but to repay old debts — $9 billion. That is, there is no net profit from IMF.

The thing is that the IMF is controlled by the same countries that have been helping Ukraine the most since the beginning of the full-scale invasion: the EU, the USA, Japan, Canada and the UK. They hold 54% of the votes on the Board of Directors. Our partners are not charitable foundations, but creditors who want to be sure that Ukraine is able to survive on its own in the long term.

That is why they focus on the IMFʼs decisions as a green light. If the Fund says that Ukraine is carrying out reforms and filling the budget, both the EU and the World Bank give money. If IMF is dissatisfied, they can block financing in all directions at once.

The requirements of IMF, the World Bank, and the European Union are not three separate lists of tasks, but one common plan. They are all aimed at Ukraine becoming a member of the EU as soon as possible.

Since 2022, when we received candidate status, the attitude of our partners has changed dramatically. If Europe used to help us as a “distant relative”, allocating €500-600 million, now we are considered part of the family. At the everyday level, it looks like this: before, they gave us “a piece of chocolate”, and now they buy us an apartment or a car so that we can survive.

That is, they finance weapons, the social sector (pensions, teachersʼ salaries). But this generosity has a downside: if the EU sees that we are only imitating reforms, the assistance will stop.

The issue of VAT for individual entrepreneurs will return regardless of how the work on the memorandum with IMF ends — because Ukrainian tax legislation will have to be harmonized with European legislation.

The European Union countries on the IMF Board of Directors want Ukraine to fulfill its obligations to the European Union and actually move towards membership, rather than being stuck in candidate status for decades. Therefore, they are imposing on us the same requirements that are basic in the EU.

The rules for registering VAT payers in EU countries apply equally to all market participants within a particular country — regardless of the form of business (legal entity or entrepreneur). At the same time, the registration thresholds themselves are determined at the national level, and they differ significantly between countries. 

For example, in Poland the threshold is about €47 000, in France — €85 000 for trade and €37 500 for services. In general, in many EU countries these thresholds are lower than the level being discussed in Ukraine — about 4 million UAH (≈ €88 000).

That is why the Center for Economic Strategy conducted its own calculations and considers the optimal threshold for Ukraine to be UAH 2.5 million.

“This is the golden mean: this level will not affect real microbusiness, but it will make the fragmentation of large businesses more expensive,” says Bohdan Slutsky.

Source: Бабель.

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