The government has decided to combine most of the unpopular tax demands of international partners into one bill. The authorities expect that this approach will allow them to gather votes in the Verkhovna Rada more quickly, but it will be difficult to pass the document without compromises with MPs.
During the January visit to Kyiv by IMF Managing Director Kristalina Georgieva, government officials and parliamentarians tried to persuade the Fund to soften some of its tax requirements. These included, first of all, the abolition of the duty-free import of international parcels worth up to 150 euros, taxation of digital platform income, fixing the military levy rate at 5%, banning sole proprietors from participating in government tenders, introducing VAT for sole proprietors, and establishing labor relations criteria to combat hidden employment schemes.
Although the total amount of the program with the IMF is $8.2 billion for four years, without it Ukraine will not be able to receive financing from other partners. In particular, we are talking about tens of billions of euros in aid from the European Union, which is a key source of covering the budget deficit and financing defense needs. In fact, Kyiv has no alternative to fulfilling its obligations to the IMF.
One big law and political bargaining
Amid the parliamentary crisis and problems with vote-gathering, the government has decided to combine several of the most sensitive tax regulations into one document. In parliament, it is already unofficially called "one big tax law." It plans to include taxation of digital platforms, the abolition of benefits for international parcels, and fixing the military levy at 5%.
These provisions should be added to the bill between the first and second readings at the initiative of the government. This mechanism allows minimizing public discussions at the start and making the most unpopular decisions at the final stage.
However, even in such a scenario, the government will have to look for incentives for MPs. One possible "garlic" in government circles is the abolition of the lifelong status of PEP - politically exposed person. For many parliamentarians, this status creates serious problems in relations with banks and actually limits financial activities after the end of their careers.
MPs have made attempts to abolish or limit the validity of PEP status before. In 2022, the Rada already reduced it to three years after dismissal, but under pressure from international partners, the lifelong status was restored. Now the idea is back on the agenda — and, probably, as part of a package of tax changes.
VAT for sole proprietors is a separate story
The IMF's most resonant demand — the introduction of a value-added tax for individual entrepreneurs — was not included in the "big tax law." According to formal conditions, Ukraine only has to submit a corresponding bill to parliament, and does not necessarily have to adopt it in a short time.
The Ministry of Finance published the draft document back in December, but after that its submission to the Rada was postponed. Moreover, the government simultaneously decided on one-time payments to individual entrepreneurs due to problems with electricity supply, which looks like an attempt to reduce social tension.
The introduction of VAT for sole proprietors is opposed by both business representatives and some government officials and think tanks. As a result, the final version of the bill, if it does make it to parliament, may be much milder than the initial proposals.
It is still unclear whether international partners will agree to all possible mitigations. Especially considering that along with the tax changes, MPs may again try to review the PEP status.
There is less and less time to maneuver. Without the IMF program and the associated European Union funding, Ukraine's budget resources could run out by spring. So the coming weeks will be crucial for the fate of the "big tax law" and further negotiations with international partners.
