Tax benefits are not a gift, but an investment: how aviation fights for a place in Defence City

Since January 1, 2025, the Ukrainian aviation industry has lost tax benefits and preferences that had been in effect for over a decade. It was thanks to these mechanisms that enterprises could modernize production, launch new projects, and preserve tens of thousands of jobs. Their cancellation has put aviation on the brink of survival: companies are operating in an exhausting mode, while simultaneously meeting the critical needs of military aviation.

An effective support tool today is considered to be the inclusion of aircraft manufacturing in the new state initiative Defence City. People’s deputies have already submitted a number of amendments, of which, according to the tax committee, only one has been taken into account. The fate of the others is still unknown, although they are critically important for preserving the industry.

UNN spoke with Viktor Popov, President of the Aerospace Association of Ukraine, about the situation, the content of the amendments, and their significance for aviation and Ukraine in general.

– Mr. Viktor, how do you assess the situation in which Ukrainian aviation found itself after the cancellation of benefits?

– The situation is critical. Aircraft manufacturing is a strategic industry that ensures defense capability, provides jobs for over 40,000 people, and creates a multiplier effect for dozens of related sectors. But since January 1, 2025, enterprises have lost tax benefits that had been in effect for over 10 years. In 2017-2023 alone, this system provided UAH 9.3 billion in released funds, and in return, the state received UAH 22.9 billion in taxes. That is, the effectiveness of tax benefits was 2.5 times, in fact, for every hryvnia of tax incentives, the state received 2.5 hryvnias in taxes. Now this support has been cut off, and enterprises are forced to work at their limit, fulfilling defense orders without proper resources.

– Why is Defence City considered a key rescue tool?

– Defence City is designed to become a special regime for defense industry enterprises. If aviation is not fully included as residents, we will have a paradox: a strategically important industry will be outside the scope of state support. And this is a risk of bankruptcies, program shutdowns, and brain drain. On the contrary, the inclusion of aircraft manufacturing will allow us to preserve production and develop projects such as the modernization of “Ruslan”, the production of An-178, new engines from “Motor Sich” and “Ivchenko-Progress”, and other outstanding achievements that even not all leading countries in the world can boast of.

It is also fundamentally important to emphasize that benefits and preferences within the framework of supporting the Ukrainian aviation industry are not money that the state “gives away”. These are discounts that enterprises invest in development. And we see the result from the figures and indicators. This is the most effective investment of the state.

– What will happen if these amendments are not taken into account?

– This will mean systemic degradation. Production will decrease by 30-40%, investment programs by 40-60%. Up to 15,000 jobs will be lost. And most importantly, we will lose technological competencies and independence. For a country at war, this is unacceptable.

– Moving on to the content of the changes proposed by aviation in Defence City, the percentage barrier of defense income caused sharp discussions from the very beginning, why is that?

– The 90% requirement for defense activities was absolutely unrealistic for aviation. Even for leading companies such as JSC “Antonov”, this indicator does not reach such a level due to the specifics of their work. After our amendments were submitted and considered, the tax committee announced a reduction in the defense income threshold for aviation enterprises from 90% to 50%. This is more realistic, but the key is not just the figure, but also the correct definition of what exactly constitutes defense income. This should include not only direct supplies to the Ministry of Defense, but also the production of aircraft, their repair, modernization, and maintenance. This is also work for defense.

The example is very simple: a modernized transport aircraft, which yesterday worked in civil aviation, tomorrow can perform tasks for army aviation – deliver ammunition, evacuate the wounded, or transport troops. This is a direct contribution to national security, and the law must take this into account.

No less important is the issue of international contracts. Ukrainian enterprises fulfill agreements not only for the Ministry of Defense, but also under international programs, including dual-use ones. This integrates us into the global market, brings foreign currency revenues, and at the same time strengthens the budget.

At the same time, if we understand the situation regarding this point and it is more or less acceptable, the fate of the others is still unknown, although they are critically important.

– What other amendments remain necessary to consider and why are they so important?

– They can be grouped into several blocks. One of the most important is the inclusion in the list of Defence City residents of aviation enterprises that fall under the Law “On the Development of the Aircraft Manufacturing Industry” and have already been recognized by the Cabinet of Ministers as critically important for the economy and defense. If this is not done, a paradox arises: the state previously granted the industry a special status, and now it ignores it itself, forming a new initiative without taking aviation into account. This creates a risk of losing an entire sector that has proven its strategic importance.

– The current bill cuts off enterprises with debts. Why is this unfair?

– In wartime, tax arrears often arise due to shelling, relocation, and destruction of production facilities. But these enterprises still fulfill defense orders. We propose a compromise: give three years to repay the debt. This preserves the principle of responsibility, but allows them to work.

– The aviation industry also insists on exemption from corporate income tax. Why is this fundamentally important?

– Because these funds will not go to dividends or “eating up”. They remain within the enterprises themselves and work for development. First of all, these are investments in research and development (R&D). This is a huge layer of work, without which aircraft manufacturing simply does not exist: the creation of new engines, aircraft modernization, the development of unmanned platforms, the introduction of composite materials and digital technologies. It is thanks to R&D that solutions emerge that tomorrow become the heart of our aircraft.

An example is the modernization of “Ruslan” – a unique transport aircraft capable of carrying hundreds of tons of cargo. Without constant research and design work, it would have long been outdated, but thanks to R&D, we can extend its resource, adapt it to modern needs, and integrate it into defense tasks.

Another example is the restoration of the Ukrainian “Mriya”. This is a symbol of the state, but at the same time, an extremely complex engineering project that requires unique developments. Can Ukrainian enterprises implement it? Yes, provided they have the resources for R&D and production modernization. It is the exemption from corporate income tax that allows accumulating such funds and transforming them into innovations that make us competitive in the world and strong in war.

– What other changes are proposed?

– This includes exemption from land, property, and environmental taxes, and waiver of fines and penalties in case of exclusion from the list. Because an enterprise that has suffered from shelling cannot be punished twice. We also propose to establish a transparent procedure for the use of released funds under government control.

– Your main message to lawmakers?

– Defence City will not be able to achieve maximum effectiveness without aviation. This is not “just an industry,” it is a strategic advantage that is important not to lose. Our call is simple: give aviation a chance to survive and become the locomotive of post-war recovery.

In Ukraine, narratives sometimes emerge as if aircraft manufacturing no longer exists. But this is a direct copy of enemy propaganda, which for decades has been trying to convince us that we “can’t do anything.” In fact, Ukraine has all the capabilities and competencies to build aircraft, develop aviation, and move forward. Yes, after the start of the full-scale invasion, conditions became extremely difficult, many enterprises lost production bases or were forced to relocate. But the potential has been preserved, and if the state supports the industry, it will prove its strength.

Our task is to prevent aviation today from repeating the fate of the almost lost space industry. We can not only preserve but also strengthen it. For this, one thing is needed: political will and the restoration of life-tested support mechanisms.