Money for the budget: will the Ukrainian government manage to avoid tax increases?
27 August 17:19
The need for additional funding for this year’s budget is planned to be covered without raising taxes. Officials in both the government and the parliament are more or less confident about this.
There is no such certainty about next year. Especially given the fact that not all of Ukraine’s external financing needs are covered for the next year. What tax innovations should Ukrainians be prepared for?
19 billion dollars – this is the uncovered need for external financing for 2026.
In mid-July, Roksolana Pidlasa, the head of the Parliamentary Committee on Budget, mentioned this figure. Both the Ukrainian government and European partners are currently looking for these funds. The government also plans to apply for additional funding from the International Monetary Fund. Moreover, an IMF mission will arrive in Ukraine in the coming weeks.
As you know, the IMF calculated Ukraine’s financial needs for 2026 based on the assumption that the war would end by the end of 2025 or in mid-2026. However, this scenario does not look very realistic at the moment, and thus there is a reason to talk about a new IMF support program. It is easy to imagine that in the process of determining the terms of this program, new tax opportunities to fill the Ukrainian budget will be discussed.
Tax reserve of the Ukrainian budget
Among the plans for this year, the effect of which can be expected next year, we can mention two items.
First, we are talking about the tax on income from online platforms. The relevant draft Law on Amendments to the Tax Code of Ukraine and Certain Other Legislative Acts of Ukraine on the Implementation of International Automatic Exchange of Information on Income Received through Digital Platforms (No. 13232) was prepared and submitted by the Cabinet of Ministers at the end of April. According to the memorandum with the IMF, it was to be adopted by the end of 2025. However, on July 17, the draft was withdrawn and removed from consideration. As explained by Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Taxation, and Customs Policy, this was done due to the resignation of the government, and we can expect its submission from the new government.
Second, it is worth mentioning the announced introduction of an excise tax on sweet water. This is provided for in draft law No. 9032-1, which states, literally, “the introduction of an excise tax on water, including mineral and carbonated water, with the addition of sugar or other sweetening or flavoring substances.”
on July 18, the relevant committee recommended it for consideration and adoption in the first reading.
a. Other tax reserves were outlined in the spring during meetings between the Ukrainian government delegation and IMF representatives in Washington. They were talking about the budget for 2026, and the IMF traditionally insisted on increasing domestic revenues, or, more simply, on raising taxes. They talked about an upward revision of VAT rates, in particular, an increase in the basic rate from 20% to 22%, the introduction of a progressive personal income tax scale based on the principle that the more one earns, the more one pays, and they also did not forget about the luxury tax, i.e. the taxation of elite assets.
b. The documents agreed with the IMF in July this year during the eighth review of the Extended Fund Facility program also mention Ukraine’s unused tax reserves
- As the IMF representatives emphasized, depending on the size of the financing need, there are still unforeseen measures that could increase revenues to a sufficient level, including “further increases in the military surcharge and/or additional taxes on luxury goods (such as jewelry, cars and precious metals) or excise duties.”
In this case, the correlation between the increase in revenues and the need for additional budget financing can be considered important.
The reality of tax “surprises”
Dmytro Boyarchuk, executive director of CASE Ukraine:
“For the next year, we lack about $20 billion to cover our needs. If there is no additional international funding, then, of course, there will be a need to generate these funds, to take them from the economy. That is, it will be taxes or borrowing or some emission steps. I think the IMF is expecting such proposals. One of the options discussed last year was to raise VAT. They may want to cancel the simplified taxation regime. At least, this idea is very popular in the Ministry of Finance. There are hopes that the customs will be rebooted, which will create some new opportunities. The same applies to the work of the BES.”
Oleksiy Gerashchenko, economist, professor at Kyiv-Mohyla Business School:
“The financing of the 2026 budget is under a certain threat. Most likely, this issue will be resolved politically, but the partners will demand an increase in Ukraine’s contribution to solving the problem. It should be an increase in the budget’s own revenues through tax increases. Most likely, it will be an increase in VAT. Excise taxes may also increase. There will probably be attempts to increase customs revenues. However, it is too early to talk about a specific configuration of changes. Obviously, the government will try to convince its partners that tax increases are a problem, as the economic growth trajectory has dropped to its lowest point in 2025. When the Ukrainian authorities communicate with the IMF mission, they will obviously talk about the implementation of structural beacons, including not only the economic program but also certain political commitments, including the fight against corruption, the independence of anti-corruption bodies, strengthening of government institutions, and the distribution of powers between the branches of government. Most likely, this will be a multi-round negotiation process.”
Ivan Us, PhD in Economics, Chief Consultant at the Center for Foreign Policy Studies of the National Institute for Strategic Studies
“Of course, the IMF must be sure that Ukraine will have the resources to repay loans, develop its economy, and they will monitor this. It is quite possible that the IMF will say that Ukraine should also think about how to provide itself with more money, and as part of this process, it is possible to raise taxes. This does not mean that they will do so, but there will be talk about it. However, it is advisable to talk about more than just raising taxes. The state should first of all develop the opportunities that exist. For example, establishing export routes. One such project is the Dry Port in the village of Horonda, Zakarpattia region. This port will allow the state to establish direct grain supplies through this port without having to stay in neighboring EU countries. If these projects are implemented, it will increase the state’s export capacity, which will mean more money for the budget. That is, I see a window of opportunity for the state to earn money on its own.”
The International Monetary Fund mission is expected in Kyiv on September 3.
At least, this is the date of arrival announced by MP Yaroslav Zheleznyak. IMF experts will evaluate the draft budget of Ukraine for 2026, discuss a new program of cooperation with Ukraine, and together with Ukrainian officials, possibly find the best solution to meet the country’s financial needs in the face of war and to continue reforms.
Author: Serhiy Vasylovych
