New IMF Program in Ukraine: Focus on Combating the Shadow Economy Amid Political Crisis in Parliament

A new program initiated by the International Monetary Fund (IMF) in Ukraine is surprisingly centered on tackling the shadow economy. This topic was the focus of discussions during a panel titled 'Dialogues with NV. Business and European Integration,' moderated by investment banker Serhiy Fursa.

Experts noted that the primary goal of the new program is to secure funding for Ukraine amidst the ongoing war. The program, approved on February 26, aims to provide Ukraine with $8.1 billion over the next four years. This funding will be crucial in covering the country's financial deficit, which is estimated to reach approximately $136 billion by 2029.

Prishila Tofano, one of the experts, emphasized that Ukraine needs to mobilize its own resources to sustain the war effort. 'We need to pay for the army, repair energy facilities that are being destroyed due to Russia's aggression. External funding is insufficient, so Ukraine must find internal resources,' she stressed.

The expert explained that to mobilize internal resources, the country can either increase revenues or cut expenditures. However, she pointed out that reducing expenditures is challenging as social spending is already very low. Therefore, the government must focus on increasing tax revenues.

Yet, this raises the question: what exactly should be taxed? 'Real income per capita in Ukraine has nearly reached pre-war levels, but real private consumption per capita is higher. Thus, taxing consumption could be a sensible choice,' Tofano noted. She also added that wealthier individuals consume more, making consumption taxation a fair solution.

Among the government's proposals is an increase in the value-added tax (VAT) rate or an expansion of the tax rate scale. When the IMF approached Ukraine with a request to raise the VAT rate, both the government and businesses expressed concern about why tax rates are being raised for those who already pay taxes rather than targeting tax evaders. This issue has become significant in the context of combating the shadow economy.

Danilo Hetmantsev, another expert, emphasized that the changes demanded by the IMF are necessary for Ukraine to finance its military and ensure fair redistribution of funds. 'Shadow and corruption are one and the same. De-shadowing means equal playing fields,' he remarked, underscoring the importance of fighting the shadow economy to create a civilized society.

Hetmantsev also pointed out that while many companies in Ukraine operate legally, there are those that receive unjust benefits. 'The system that allows small businesses to evade taxation is a serious problem,' he stressed.

In conclusion, experts highlighted the importance of mobilizing resources for the war effort and the necessity of overcoming the political crisis in parliament. Without the support of lawmakers, the implementation of the IMF program could be jeopardized, complicating the situation for Ukraine amid the ongoing war.