IMF backs 2% VAT rise to meet Russian invasion costs
A mission from the International Monetary Fund has joined the debate on a rise in Ukrainian standard VAT rate from 20% to 22%. A parliamentary finance committee is currently reviewing a consumption tax rise, including a similar 2% rise in the reduced VAT rates of 14% and 7%.
May 2024: Ministry of Finance considers 2% to 3% VAT rise to fund war with Russia
Ukraine’s Ministry of Finance is reported to be considering a 2% or 3% VAT rise from the current 20% rate to help fund military spending following the 2022 illegal Russian invasion.
It is also reviewing a rise the Military Tax from 3.5% to 5% on employees, and extending it to non-incorporated businesses.
The tax raising proposals will likely be introduced by the end of June, with an early implementation date of September possible.
Countries such as Estonia have also resorted to VAT rises to help fund extra military spending following the Russian action in Ukraine. A Lithuania VAT rise is also being considered.
Ukrainian Value Added Tax
Ukrainian VAT is a consumption tax applied to goods and services at each stage of production and distribution. As of 2024, the standard VAT rate in Ukraine is 20%. Businesses are required to charge VAT on taxable supplies of goods and services, including imports.
Certain goods and services are subject to reduced VAT rates or exemptions. For example, the export of goods is taxed at a 0% rate, and specific categories like pharmaceuticals and medical products benefit from a reduced rate or exemption.
VAT is generally collected by businesses from their customers and remitted to the government. Registered businesses can also reclaim VAT on their purchases, provided the goods and services are used for taxable activities. However, non-recoverable VAT applies to personal or exempt purchases.
To administer VAT, businesses must register with Ukraine’s tax authorities if their taxable turnover exceeds a certain threshold, or voluntarily if below it. The VAT system is essential for Ukraine’s revenue, representing a significant portion of its tax income. Moreover, the VAT administration has been a focus of reforms aimed at curbing tax evasion and streamlining the system for both local and foreign businesses.
