The state is preparing the infrastructure to launch the large-scale reforms that are currently being postponed in 2027–2028.
Let’s start a little from afar: when you open the draft state budget for 2026, the first thing that catches your eye is the figure of 4.8 trillion hryvnias. For comparison: in the last peaceful year, we operated with an amount of 1.3 trillion. It would seem that the state’s financial resources have tripled – wonderful!
But, unfortunately, this is a mirage. If we use an uncomplicated tool, for example, an economics textbook, we will learn that this is called “nominal growth”. The fact is that in reality, Ukrainian money exists in two dimensions at the same time – there are numbers on paper, and there is their real purchasing power after wartime inflation bit off a piece of it.
If we convert the 2026 budget into 2021 prices — to compare what is really comparable — a not-so-pleasant truth emerges: our capabilities are shrinking. This is not something that is hidden, but it is not made into the headlines of press releases either.
The New Norm
In 2025, the security and defense sector absorbed 58% of the budget. It is important to stop here. These 58% are not some temporary anomaly or emergency measure. This is the reality of the Ukrainian economy, which will last as long as the need for defense lasts. One can have different attitudes towards specific decisions by the authorities, but the fact remains: while the war is ongoing, there is simply no alternative distribution of the budget.
This means that education, medicine, social protection, pensions, roads, culture — all of this now shares less than half of the budget among themselves. And this part, if we look honestly, is not growing in real terms.
Let’s take social protection as an example. In 2022, it was 16% of the budget, in 2026, it was 10%. The six percentage points difference is not just statistics. Behind these figures are specific programs that have either been reduced or disappeared altogether. Pensions are growing nominally, but in real prices, purchasing power is almost unchanged – inflation eats up the formal increase.
It is worth understanding that there are no simple solutions here. The system needs reform – everyone understands this. But reforming the system during a war, when some taxpayers are either at the front or have left, and the demographic crisis is getting deeper and deeper – is an attempt to overhaul an airplane during a flight. Of course, you can try, but the consequences can be fatal.
Ten billion for nothing
But let’s get back to the main question: where did that very hole in the budget come from, which so many people talk about?
The thing is that even these 4.8 trillion are not the whole picture. In recent years, Ukraine has covered about a third of its budget with foreign aid. It’s no secret — grants and loans from partners have helped close the gap between revenues and expenditures.
In 2025, Ukraine was counting on about $55 billion in such aid. In 2026, according to initial estimates, it will be only $11 billion. A five-fold difference. And even if you take into account all the credit lines, tranches, and support programs confirmed to date, there is still a gap of about $10 billion.
To understand the scale: this is 40% of Kyiv’s annual budget. Or two and a half months of financing the entire army. Or three full years of spending on the country’s entire higher education combined. This money has to come from somewhere — otherwise, spending will have to be cut by the same amount.
And here it’s worth taking a step back to see the bigger picture. This is not the first fiscal crisis in the history of Ukraine, and each time the state promised to solve it “in a new way”. But there is a pattern: when a budget deficit arose before, the authorities followed the easiest path — raising rates for legal businesses, which are already paying everything. The shadow sector remained untouched simply because there were no tools to control it.
This time the logic is different — at least in theory. Instead of another “tightening of the screws” on those who are already in the system, the state is betting on expanding the system itself. To bring out those who are not paying at all now. But will this bet work — a question that only time will answer.
Ten billion hryvnias of the budget problem
So, yes, there is a gap of $10 billion — what will they do with it?
Option one — de-shadowing the economy. It sounds like a spell that has been repeated for fifteen years, but this time there is specifics. The government is budgeting 400–450 billion hryvnias in additional revenue from “bringing the economy out of the shadows.” At the current exchange rate, that’s about $15 billion.
Danylo Getmantsev, head of the parliamentary finance committee, estimates the size of the shadow economy at 900 billion — a trillion hryvnias in uncollected taxes every year. If we can “get” at least 40–45% out of it, the problem will be solved.
De-shadowing is the government’s strategic bet. But let’s be honest: history shows that such plans have never been implemented 100%. Moreover, every year they promise to bring the economy out of the shadows, and every year the plan doesn’t work. Why should it be different this time?
The answer is technology. Previously, de-shadowing meant raids, inspections, and pressure on businesses that are already in the system. Now we’re talking about something fundamental.
There are other things: SAF-T (automatic exchange of tax data with businesses), e-excise stamps for alcohol and tobacco, reporting of sellers’ income by digital platforms, gradual expansion of tax authorities’ access to information about bank accounts. This is not just increased control – it is a change in the very nature of control. Previously, the tax authorities saw only what they were shown. Now they will start to see everything.
But even with these technologies, there is a problem of scale. This is not yet the volume to immediately add 400-450 billion to the budget. The system needs time to deploy. And even in the best scenario, de-shadowing gives less than is needed if international aid really falls so sharply.
Option two – new taxes without increasing basic rates. You can add:
14 billion UAH from taxation of income on digital platforms — the same “tax on OLX” that so many talked about
8.5 billion UAH from excise duty on sweet drinks
About 26 billion UAH from enhanced collection of tax debt
In total, it comes to about 48–50 billion UAH. This is $1.5–2 billion at the current exchange rate. It helps, but not critically — it covers only a fifth of the gap.
Option three — increasing the basic rates. And here the most delicate part begins.
In the memorandum with international financial partners, there is a wording that is worth quoting verbatim: “Increasing the basic VAT rate would be the most appropriate response to budget shocks.” This is not an ultimatum or a demand. It is a statement of readiness for such a step if other options do not work.
Currently, VAT is 20%. An increase of one percentage point gives approximately 50 billion hryvnias in addition. An increase of two — about 100 billion. For comparison: last year’s increase in the military levy from 1.5% to 5%, which has already taken place, brought 122 billion in a year.
That is, the tools are there. The question is whether they will have to be used. And the answer to this question depends on how realistic de-shadowing will work and whether international aid will arrive on time. If history is any guide, then de-shadowing plans are usually implemented by 60–70% at best. And international aid has a habit of being delayed due to bureaucratic procedures and political changes in donor countries. This is not pessimism — it is simply the statistics of past years.
Three scenarios: calm, turbulent and another
Now that the context is clear, we can outline the three most likely scenarios for the development of events, given these input data.
Optimistic scenario: de-shadowing works partially — it gives about 300–350 billion hryvnias instead of the planned 400–450. This is not a failure, but it is not a success either. New taxes add their 48 billion. International partners find additional funds — maybe not all $10 billion, but a significant part. Domestic borrowing through OVDP covers the rest.
Here, the main tax rates remain unchanged. VAT — 20%, income tax — 18%, personal income tax — 18%. Military duty remains at 5% all year. The reform of the simplified system for individual entrepreneurs is postponed to 2027. The budget is balanced — albeit with tension, albeit on the verge, but without dramatic increases.
For business, this means predictability. For citizens — the absence of new tax shocks. For the state — continued balancing on a tightrope between defense needs and social obligations.
The base scenario is a little different — de-shadowing does not meet expectations and yields only 200–250 billion. International aid is delayed due to bureaucratic procedures, political changes in donor countries, whatever. By mid-2026 — somewhere in June-July — it becomes obvious that the problem is not being solved by the methods that were counted on.
That is when the same “most appropriate response” is most likely activated: VAT is increased by one percentage point, to 21%, starting in the fall.
This gives about 50 billion hryvnias by the end of the year and closes the main shortfall. Socially, this is very painful — VAT is reflected in prices, so literally everyone will feel it. If you take into account inflation, it becomes even more unpleasant. But there are also advantages, although only for the budget — it is technically implemented quite quickly and gives a predictable result.
Businesses will have to restructure pricing in the middle of the year. Citizens will have to get used to another rise in the price of everything in a row. But this is still a controlled increase, not a chaotic one.
The critical scenario is that de-shadowing fails (less than 200 billion), international aid is reduced more than expected, and domestic borrowing is pushed to the limit of what is possible. In the summer-autumn of 2026, it becomes clear that the basic tools are not working.
Then they launch “Plan B”: VAT to 22–23%, income tax to 20%, accelerated reform of individual entrepreneurs with differentiated rates of 3–17% starting in 2027, instead of a gradual implementation. Perhaps a return to the idea of a progressive personal income tax scale, although its parameters have not yet been determined.
This is the most difficult scenario, but, as we see from statistics, it is quite real – every fifth case. The situation will reach this level of crisis if several fuses break at the same time: de-shadowing will not allow even the minimum, the aid will be delayed for a critical long time, and the domestic government bond market will be saturated.
What does this mean for you personally
If you run a business — especially a small or medium-sized one — the most important news is this: rates will most likely not change in 2026. But this does not mean that nothing will change.
The biggest mistake is to think that if rates remain the same, then the tax burden will not increase. In fact, something much more fundamental is happening: the state is changing the very logic of control.
The depth of vision will change. SAF-T for large payers, electronic excise stamps, reporting by platforms about your sales on OLX or Prom.ua, gradual disclosure of bank information for the tax office. Even if your rate remains the same — say, 5% for a third-group individual entrepreneur — the opportunities to “optimize” income in dubious ways will likely decrease.
The effective rate for many will increase not because of changes in the legislation, but because of changes in the reality of its implementation. It’s like switching to cameras on the roads that record speeding – the speed limit has not changed, but driving 150 in a “90” zone suddenly became expensive.
If you are employed – the military levy of 5% will remain all year. Personal income tax of 18% too. Nominal wages may increase, but real purchasing power will continue to slowly slide down due to inflation.
The main thing to understand
2026 is not a year of tax changes, it is a year of tax preparation. The state is preparing the infrastructure in order to launch those large-scale reforms that are currently being postponed in 2027-2028.
The simplified system will still be reformatted – with differentiated rates from 3% to 17% depending on the type of activity. A progressive personal income tax scale will still be introduced — with different rates for different income levels. Banking secrecy will still be “revealed.” The era of financial privacy is ending all over the world, and Ukraine is no exception — we are simply moving in the general direction.
But all this is unlikely to happen in 2026. Next year, mechanisms will be tested, procedures will be debugged, and additional digital infrastructure will be created. And in parallel, the budget will continue to be balanced between the war, obligations to partners, and the social needs of its own citizens.
This will be another year when nominal figures grow and real resources are squeezed. When defense spending remains an absolute priority, and everything else adapts to this reality. When tax rates will probably not change, but tax administration will become much tougher.
And most importantly, this is a year when everyone who makes financial decisions should understand: a possible pause in reforms is temporary. The question is not “if,” but “when.” And the answer, most likely, is 2027–2028.
