Ukraine, IMF Discuss Alternatives on VAT for FOPs as Business Pushes Back

A plan to extend VAT to Ukraine's sole proprietors is on ice, with Kyiv and the IMF now hunting for alternative revenue sources ahead of the 2027 budget. Make us preferred on Google Share Facebook X (Twitter) LinkedIn Bluesky Email Copy Copied Kyiv, Ukraine, September 2012 (Photo Sharon Hahn Darlin / Wikimedia Commons) Content Share Facebook X (Twitter) LinkedIn Bluesky Email Copy Copied Flip Make us preferred on Google The International Monetary Fund (IMF) has shown understanding of the sensitivity around introducing value-added tax (VAT) for sole proprietors (FOPs), according to First Deputy Prime Minister Yulia Svyrydenko. Reporting on the results of the IMF Spring Meetings in Washington, Svyrydenko said partners recognize the initiative is a non-constructive idea and are looking for alternatives. The reform, which would require small businesses to register as VAT payers, was initially a prior action under the $8.1 billion IMF program before being moved to a structural benchmark. The proposal is part of a broader effort to bring the shadow economy into the open and ensure budget sustainability. It faced resistance from the Ukrainian public and business community, who argued that the added tax burden and reporting requirements could stifle small-scale entrepreneurship. Follow our coverage of the war on the @Kyivpost_official . During the high-level meetings in Washington, Ukrainian officials worked to explain these domestic challenges to international partners, seeking a more flexible approach to the reform. “We found understanding with our partners that this [introducing VAT for sole proprietors] is indeed a sensitive topic, as the President has repeatedly said to IMF representatives,” Svyrydenko said on Telegram . She added that Ukraine will continue working with the Fund on alternative measures to secure the revenue side of the 2027 budget. Other Topics of Interest Speed Up Green Deal – Don’t Shield Public From Fuel Costs, IMF Tells Europe Amid Middle East War IMF said European national governments should not shield consumers and businesses from fuel price spikes due to the Middle East war, to speed the Green Deal and stop relying on imported fossil fuels. A source familiar with the negotiations told Kyiv Post that VAT for FOPs has not been canceled, but the “format and timing” are expected to change. Details on the final configuration of the reform will be discussed during an upcoming IMF mission to Kyiv, planned for early summer. The Ministry of Finance has published two versions of this reform on its website. The first draft set the VAT registration threshold at Hr.1 million ($22,720).  The second, more recent draft was published as a comprehensive tax package. In addition to VAT for FOPs, it included three other prior actions under the IMF program – all of which Ukraine was required to fulfill by the end of March. To improve the chances of parliamentary approval, the government split the bill into four separate pieces of legislation. Two have made progress: The second draft raises the annual income threshold for FOPs on the simplified tax system to Hr.4 million ($90,900), effective Jan. 1, 2027. To ease the transition, the Ministry proposed quarterly reporting and symbolic fines of Hr.1 ($0.02) for the first five violations in the first year. Ukraine’s simplified tax system for sole proprietors is divided into three main categories based on annual income and tax rates: All sole proprietors must pay a minimum Unified Social Contribution (ESV) of Hr. 1,760 ($40) per month.  Entrepreneurs outside the simplified system pay 18% personal income tax and a 5% military levy on net profit. If the proposed reform is adopted, those earning above Hr.4 million ($90,900) would also pay an additional 20% VAT. The proposal drew strong opposition from Ukraine’s business community and lawmakers on both occasions it was published. A petition on the Cabinet of Ministers’ website calling for its withdrawal gathered the required 25,000 signatures for government consideration in February 2026. Business associations including the Union of Ukrainian Entrepreneurs and the Association of Employers called for a higher registration threshold of Hr.6 million ($136,360), and warned that the requirement to maintain a permanent accountant would add costs many small businesses cannot absorb. Think tanks cautioned that the projected fiscal gain of Hr.40.1 billion ($911.4 million) would fall short of the estimated administrative costs of implementing the changes, put at between Hr.61 billion and Hr.115 billion ($1.39 billion to $2.61 billion). Danylo Hetmanstev, leader of the Servant of the People party and chairman of the Committee on Financial, Tax and Customs Policy, also voiced opposition.  “I personally promised FOPs that we would not change the single tax until the end of martial law. I intend to keep that promise,” he stated on Telegram. Olena Hrazhdan is the Business Reporter at Kyiv Post, covering Ukraine’s markets, business, and economic policy. While she reports broadly on economic issues, her core focus is banking, finance, monetary and fiscal policy. Olena previously wrote for leading Ukrainian business media and became a Fellow of the International Monetary Fund’s Journalism Fellowship in 2024. Mariіa Boltryk has been a journalist since 2022 and has been working for Ukraine's leading news agency Interfax-Ukraine. At Kyiv Post, she covers macroeconomics in Ukraine and business-related topics.