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.
President of Ukraine Volodymyr Zelensky and Managing Director of the International Monetary Fund Kristalina Georgieva, January 15, 2026.
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.
Screenshot from the report "Monitoring the Implementation of IMF Programs and EU Assistance", which was presented on March 30 by experts from the RRR4U Consortium.
rrr4u.org
The government signed a memorandum with the IMF, in which it pledged to carry out reforms in many sectors of the economy. In particular, it will change tax legislation in order to independently fund the budget. One of these changes — VAT for individual entrepreneurs — did not please the parliament.
On February 26, Ukraine and the International Monetary Fund signed a memorandum. The government was to receive $8.1 billion. In return, it proposed to the Fund reforms in many sectors of the economy: tax legislation, customs, corporate governance of state-owned banks, the anti-corruption system, and energy policy. In total, the memorandum consists of 12 “structural beacons”, and tax law reform is one of these beacons.
As part of the tax law reform, the government decided to abolish VAT exemption for individual entrepreneurs from January 1, 2027. By the end of March, the Verkhovna Rada was to adopt a package of tax changes for 2026-2027. Individual entrepreneurs whose annual income exceeds the established threshold were to become VAT payers, just like any legal entity.
Currently, entrepreneurs on the simplified VAT system do not pay VAT regardless of their turnover — the current Tax Code exempts them from this obligation. Legal entities on the general taxation system must pay VAT only if their annual turnover exceeds UAH 1 million.
Back in December 2025, the Ministry of Finance submitted for public discussion a draft law that would have required individual entrepreneurs to become VAT payers if their annual turnover exceeded UAH 1 million. It was criticized. The government then raised the threshold to UAH 4 million and combined this proposal with an additional package of tax reforms.
On January 25, people took to the Independence Square and other cities of Ukraine for a rally called "Money for the Armed Forces of Ukraine. Resistance to Corruption. Hands Off Self-Employed Entrepreneurs."
In the end, on March 30, the Cabinet approved three bills from this package — but without VAT for individual entrepreneurs. It was sent for further revision. If the reform is finally adopted in the form currently being discussed, individual entrepreneurs of the third group with a turnover of more than UAH 4 million per year will become VAT payers from January 1, 2027.
As MP and member of the Committee on Economic Development Ihor Marchuk explains, in fact, the memorandum does not oblige Ukraine to reform tax legislation in this way. For IMF, the main thing is macro-financial stability.
According to him, the Ministry of Finance submitted its proposal to IMF without consulting either the relevant committee of the Verkhovna Rada or business. This is why the government and parliament began to argue.
The MP of Ukraine of the 9th convocation and member of the Verkhovna Rada Committee on Economic Development, Chairman of the Subcommittee on State-Business Interaction and Investments Ihor Marchuk.
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.