“On December 18, a message appeared on the official web portal of the Ministry of Finance of Ukraine, which could be a harbinger of tectonic shifts for all small businesses in the country. The draft law “On amendments to the Tax Code of Ukraine regarding the registration of single tax payers as value added tax payers” was proposed for public discussion. This document actually proposes to cancel the long-standing “immunity” from VAT for entrepreneurs on”, — write on: ua.news
On December 18, a message appeared on the official web portal of the Ministry of Finance of Ukraine, which could be a harbinger of tectonic shifts for all small businesses in the country.
The draft law “On amendments to the Tax Code of Ukraine regarding the registration of single tax payers as value added tax payers” was proposed for public discussion. This document actually proposes to cancel the long-term “immunity” from VAT for entrepreneurs on the simplified taxation system, equalizing them in rights and, more importantly, in obligations with large businesses as of January 1, 2027.
What is changing?
The essence of the proposed changes is a radical revision of Article 181 of the Tax Code of Ukraine. If according to the current legislation, natural persons-entrepreneurs of groups 1, 2 and 3 (with a rate of 5%) are exempted from the obligation to register as VAT payers regardless of the volume of their annual income (within the limits of the group), then the new project will eliminate this preference.
The only criterion for mandatory registration as a VAT payer is the income threshold of 1 million hryvnias for the last 12 calendar months.
In practice, this means that any entrepreneur – be it the owner of a coffee shop, or a hairdresser, or an IT specialist, or a seller in a store near the house – in case of exceeding this limit, will be obliged to obtain the status of a VAT payer. An exception is provided only for a narrow category of e-residents. Thus, the state plans to cover almost the entire range of small businesses with VAT, from trading in markets to the provision of household services, which was previously the prerogative of the general taxation system.
Official position of the Ministry of Finance: IMF and Strategy-2030
The government’s intentions are serious and clearly planned in time. This is confirmed not only by public statements, but also by official correspondence of the department. In particular, in response to the appeal of the National Association of Lobbyists of Ukraine, the Ministry of Finance disclosed details of agreements with international partners.
According to the Ministry of Finance, the introduction of VAT for “simplified” people is part of the fulfillment of the terms of the new 48-month cooperation program with the International Monetary Fund (Extended Fund Facility — EFF), an agreement on which was reached at the level of experts on November 26, 2025. This program provides access to $8.1 billion in financing.
The letter clearly outlines the reform schedule:
The government’s argument is based on the National Income Strategy 2030 (section 4.3.1). The Ministry of Finance emphasizes that the reform is designed to:
- Ensure equality of taxpayers. Currently, VAT payers are losing competition to “simplifiers”, as the former pay 20% to the budget, while the latter do not, at often the same market prices.
- Limit abuse by big business. According to government officials, large companies use FOPs to break up business and minimize taxes.
- Fight against smuggling. It is believed that breaking the VAT chain at the retail stage facilitates the sale of illegally imported goods.
The expected fiscal effect of the reform is estimated at more than 40 billion hryvnias of additional revenues to the budget already in the first year of its implementation.
Risks and pitfalls
Despite the logical arguments of the authorities, much deeper risks are hidden in this initiative, which may negate the potential fiscal benefit. The most critical point is the very threshold of 1 million hryvnias. In terms of current inflation, this amount is equivalent to a turnover (not profit!) of 83 thousand hryvnias per month. This is an indicator of a micro-business that is often run by a single person or family.
To force such a business to administer VAT is to place an excessive administrative burden on it. Accounting for VAT requires professional accounting, specialized software and constant attention to the registration of tax invoices, which is virtually impossible for an entrepreneur of the 1st or 2nd group without significant additional costs.
The threat of shadowing
Such an approach threatens not detinization, but, on the contrary, a mass retreat of business into the “shadow”. Entrepreneurs whose turnover ranges from 1.5 to 2 million hryvnias will be faced with a choice:
- Raise prices by 20% and hire an accountant, losing competitiveness.
- Divide the business among relatives.
- Switch to cash payments “beyond the cash register” so as not to artificially exceed the limit of 1 million.
While large and medium-sized taxpayers who use “simplifiers” in their work will be able to simply increase their number and continue using them.
Inflationary shock
An inevitable consequence will be an increase in the price of goods and services for the final consumer. VAT is an indirect tax that is always paid by the buyer. So the cost of a haircut, shoe repair or coffee will automatically increase by at least 20%, which will trigger a new round of inflation in the service sector.
Corruption risks
In addition, it is worth considering the problem of blocking tax invoices. If today it is a headache for medium and large businesses, then after the reform, thousands of small entrepreneurs may become hostages of the system. For a small business, stopping work even for a week due to bureaucratic obstacles can be fatal.
Conclusion
In summary, it can be argued that the proposed changes effectively eliminate the very philosophy of the simplified tax system, which was created to support and develop the middle class. The introduction of VAT for micro-businesses with a turnover of 1 million hryvnias looks like an attempt to solve budgetary problems at the expense of the least protected market participants.
Although the Ministry of Finance refers to the requirements of the IMF and the need for European integration, the implementation of these changes without a significant increase in the registration threshold may lead to the disappearance of legal small business as a class.
That is why it is critically important for the business community to join the discussion of this draft law on the website of the Ministry of Finance while it is at the consultation stage.
Taras Onyshchenko
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