The reverse effect: how the desire to reduce illegal schemes in business can provoke their increase
10 December 2025 12:29
ANALYSIS FROM 
The intention of the Ukrainian government to expand the range of VAT payers at the expense of the most active individual entrepreneurs was met with surprise and disappointment by entrepreneurs themselves. This is the conclusion of the publication
According to various estimates, the IMF’s demand, supported by Ukrainian officials, to make individual entrepreneurs with an annual turnover of UAH 1 million VAT payers may affect between 200,000 and 600,000 representatives of micro and small businesses. And among them there will definitely be not only supporters of illegal schemes.
Honesty is not a criterion
The main recipients of the government’s innovation are those who are fond of “splitting” and underreporting schemes. However, those who work honestly and try to build their business will also feel all the “disadvantages” of the new approach. And while today an increase in turnover for such entrepreneurs can be considered a sign of business success, it may soon become the basis for paying a new tax. Maksym Malyovanyi, entrepreneur and head of the Business Education Institute NGO, continues .
“This, of course, should affect the part of people who, for example, work in the restaurant business and are engaged in crushing. But it will also be felt by ordinary individual entrepreneurs working in various industries. That is, those honest, normal entrepreneurs who simply “went white”, work with the state and want to pay taxes, work and earn money,” the entrepreneur notes.
Tetyana Kotenko, head of the NGO “Strategy of the Future”, which is a member of the National Platform of Small and Medium Business, calls the intention to make many individual entrepreneurs VAT payers “a convenient excuse not to fight abuses at the same customs.
“Eliminating schemes at customs would bring much more revenue to the budget. Everyone talks about restaurants where you can find ‘crushing schemes’. But if you run a microbusiness and a business that is your source of income, everything is easily traceable. That is, a person works openly: here is the contract, payment, cash register, and now, without reducing the quality of products, he will take this 20% VAT away from himself, from business development, or will put it in the price that consumers will pay. This is wrong,” the expert believes.
Disappointed surprise
Entrepreneurs were also unpleasantly surprised by the fact that it is proposed to complicate the activities of those who operate under the simplified taxation system, which was created specifically to support microbusinesses that do not have the resources for complex accounting and appropriate interaction with the state. This is emphasized by the National Business Coalition of Micro and Small Businesses and reminded:
“The simplified taxation system is not a “benefit” but a separate tax regime provided by law for microbusinesses. This is a full-fledged taxation model with its own rates, rules and restrictions, not an individual tax preference or exception for individual taxpayers. In view of this, targeted systemic solutions are needed to really reduce abuses, not a mechanical expansion of VAT obligations,” the National Business Coalition of Micro and Small Businesses said.
They believe that such non-targeted approaches will neither reduce shadow schemes nor increase VAT revenues, but will instead reproduce the already known negative consequences – business fragmentation, concealment of turnover and massive fiscalization of bona fide entrepreneurs.
This will result in the closure of sole proprietorships, a decrease in self-employment, and an increase in the cost of goods and services. Maksym Malyovanyi, an entrepreneur from Sumy, shares his opinion.
“Many people think that it’s only about this 20% VAT. In fact, the problem here is that a sole proprietorship is simply moving from a simple financial model to a complex one, where accounting support will be needed all the time, and so on. And we already understand that there will be a problem with accountants, as there is a shortage of qualified specialists in this area. All of this will have a major impact on prices. Pricing, margins, and competitiveness will change. Therefore, VAT is not just a new tax, it is really a change in business logic and business processes. This will minimize the speed of small business development and encourage business fragmentation. This is how it works: the initiators of the VAT extension to individual entrepreneurs want to fight business fragmentation, but this will provoke this very fragmentation,” the entrepreneur believes.
There is time for corrections
The Ministry of Finance reassures entrepreneurs that the changes are planned to be implemented no earlier than 2027, and assures them that the Ministry of Finance is open to developing a comprehensive solution with the participation of business on changes in approaches to VAT taxation for individual entrepreneurs operating under the simplified taxation system.
The aforementioned National Business Coalition of Micro and Small Businesses is also ready to work together to develop balanced solutions.
Interlocutors of the publication
Tetyana Kotenko, an entrepreneur from Kropyvnytskyi, believes that when determining the criteria for those who must register as VAT payers, not only the amount of turnover should be taken into account, but also the scope of activity.
“It would be better if everything was broken down by area of activity. For example, transportation, restaurant business, hotel business – this is understandable. But for microbusinesses or small farms, the self-employed, who are already exposed to many risks in their work, should they make their work even more difficult? That is, I would like to see the criteria for who is subject to VAT clarified by industry and by area of activity. With an emphasis on those where fragmentation is most abused and taxation is avoided,” the expert says.
And entrepreneur Maksym Malyovanyi has a question about the amount of annual turnover as a criterion for a VAT payer.
“I would like to get an answer to the question: why is it that the million-dollar turnover is defined as the criterion for registering a VAT payer? The second is about possible transitional periods and guarantees that there will be no further changes. Because today they set one thing, in a year it will be another. In two more years, they may abolish this simplified system altogether and everyone will become VAT payers. And if we, as a business, let this happen now, why not try to make the state earn even more money from individual entrepreneurs,” the entrepreneur emphasizes.
According to Tetiana Kotenko, special attention should also be paid to the frontline regions.
“People there live at risk all the time. And they will be subject to VAT and forced to increase their expenses by 20%. This is simply illogical. That is, microbusinesses and businesses in the frontline regions should not be subject to additional taxation now. Tomorrow will be tomorrow, but not today,” the entrepreneur says.
Today, it’s not just the prospect of additional VAT payments that is causing entrepreneurs headaches. In addition to the risks associated with the war – shelling, alarms, power outages – there are also business problems. The purchasing power of the population is declining, rents are rising, and the staff shortage is getting worse. But this does not diminish the desire of entrepreneurs to work. The government’s tax experiments can do just that.
Author: Sergiy Vasilevich
