The government plans to introduce changes to the simplified taxation system for individual entrepreneurs regarding VAT payment when exceeding a certain limit in 2027. It will not be possible to avoid this, since this is another IMF requirement, and Ukraine managed to bargain for a year to prepare individual entrepreneurs for this unpopular measure, which should help fill the state budget. If this is done, how will it affect the country’s economy and the wallets of ordinary Ukrainians, Kommersant Ukrainsky found out.
The point is that one of the IMF requirements within the framework of the agreements on a new $8.1 billion financing program was to introduce VAT for individual entrepreneurs with income over 1 million hryvnia. All entrepreneurs were to become payers, except for those in the first group, which caused a negative resonance among entrepreneurs.
After all, it turned out that every individual entrepreneur with an annual income of over a million hryvnias – which is approximately 83 thousand per month – should become a VAT payer. The other day, MP Igor Friz said that a decision was made not to discuss the issue of individual entrepreneurs and VAT at all and to remove it from the agenda.
“There are definitely no votes for this. And the state will look for other sources of budget funding,” Friz noted.
And Finance Minister Serhiy Marchenko told reporters in an interview that the task is to level the rules of the game for “simplified” taxpayers and business entities that are VAT payers, to determine common limits for these groups of payers.
Marchenko emphasized that it is impossible to avoid changes in the simplified taxation system, and the discussion with the IMF on this issue was not easy. According to him, entrepreneurs will have time – there will be a transition period until 2027, maximum explanations of the logic and reasons for such a step.
“I don’t think this is any surprise. If you look at the plans that the Ministry of Finance has been preparing for years, they also included this norm. Such measures are not popular, but they are important. And during this period, we had no opportunity for a negotiating maneuver to remove them from the discussion,” the minister said.
Analysts believe that it is necessary to start not with individual entrepreneurs
Think tanks specializing in economic policy have calculated that in 2024, more than 644 thousand individual entrepreneurs were registered in Ukraine – single tax payers with an income of over 1 million UAH. If we imagine that all of them will become VAT payers, this will create an additional burden on the VAT administration system, hundreds of thousands of accountants will be needed, which are not available, and this will lead to an increase in the current expenses of microbusiness. And all this, in turn, will lead to a financial burden on the population.
According to estimates by think tanks, making such a decision will lead to a loss of public welfare in the amount of 150-180 billion UAH, or about 1.5-2% of GDP. At the same time, experts estimate the total budget losses from abuse of the simplified taxation system at UAH 10-13 billion per year.
“In fact, such a decision will lead to the closure of most individual entrepreneurs, the growth of the shadow economy and corruption. Some highly qualified personnel will most likely leave the country in search of better conditions abroad, where, under similar taxation conditions, they will be able to obtain much better living conditions and security,” analysts state.
What analysts propose:
Set a reasonable threshold for switching to VAT, taking into account the burdensome nature of the Ukrainian system (in the EU and the UK, the threshold is EUR 85-100 thousand).
First, close the large tax evasion schemes that cause colossal losses to the budget:
Informal employment: 200–265 billion UAH/year
“Gray imports”: 105–120 billion UAH/year
Excise tax evasion: 39–43 billion UAH/year
Business fragmentation and disguising employees as sole proprietors: 26–32 billion UAH/year
Putting pressure on microbusinesses without eliminating systemic holes is a strategic mistake that will increase shadowing and corruption. The reform must be carried out carefully and in stages, analysts conclude.
The introduction of VAT will affect services and prices for Ukrainians
Sole proprietors were not created to pay taxes. The sole proprietorship system exists worldwide to remove the costs of maintaining the unemployed from the central and regional budgets, as well as to create jobs. This is the main purpose of the simplified business system, notes economic expert Yuriy Gavrilechko. In Ukraine, individual entrepreneurs save the state budget about UAH 200 billion annually, which would otherwise have to be paid in unemployment benefits. And if you calculate how much added value they create, it will be at least half of the 200 billion, the expert emphasized.
“If Ukraine introduces VAT for individual entrepreneurs, some will go into the “shadow”, and some will close. In any case, the quality of services provided will deteriorate, prices will increase, and all this will lead to a reduction in the number of specialists who will leave here. The fact is that there is no alternative to individual entrepreneurs in the services market. Ukraine will gradually approach Europe, which means that services will be worse, more expensive and less accessible. For example, you will have to wait for a plumber for weeks, or even months, and God forbid that his work will be done qualitatively. “Like now in Europe,” emphasizes Yuriy Gavrilechko.
A million hryvnias in dollars is less than 25 thousand. That is, approximately 2 thousand dollars per month “gross”. For a business, this is not money, but for a self-employed person it is a small income. Moreover, from this profit you still need to pay for rent, utilities – electricity, water, etc., buy the necessary equipment, materials, products, etc., the expert notes. An income of a million involves spending a significant part of this million. In most countries of the world, individual entrepreneurs do not pay any taxes at all up to a certain amount. But we have a targeted policy of monopolizing the market and trying to free up labor for large corporations. And these corporations do not want to pay a decent salary, and in this case, no one will work for them, people will simply leave.
