Ukraine’s commitment to eliminate the exemption that allows small businesses to operate without registering as VAT payers, currently under discussion as part of a new IMF memorandum, risks triggering a mass shutdown of small businesses and a sharp expansion of the shadow economy, according to a joint statement by the Expert Economic Platform, which brings together Ukrainian analytical centers.
According to preliminary information, the proposal would set a mandatory VAT registration threshold at an annual turnover of UAH 1 million. This would affect more than 644,000 sole proprietors who generated comparable income in 2024 under the simplified tax system.
The signatories of the statement estimate that adopting this decision would cause public welfare losses of UAH 150–180 billion (about 1.5–2% of GDP), while the potential budget gains from combating abuses within the simplified system amount to only UAH 10–13 billion. Experts also note that in the European Union, the threshold for special VAT regimes is EUR 100,000, significantly higher than the limit proposed for Ukraine.
Meanwhile, Hlib Vyshlinsky, head of the Centre for Economic Strategy (CES), urged colleagues to clearly indicate the conditions under which they themselves work, whether as sole proprietors or under the general taxation system, when participating in such debates.
“Before expressing expert opinions, it would be good to add a disclaimer explaining how exactly the expert earns their income. And whether there is a conflict of interest (spoiler: there is),” Vyshlinsky wrote on Facebook.
As for determining whether a VAT threshold of UAH 1 million a year is optimal under the current administration system and with a single tax rate for all economic activity codes, Vyshlinsky said this requires separate analytical work.
“And the Ministry of Finance and the IMF should understand this. We, of course, are already working on it,” the expert said.
Source: Interfax-Ukraine
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