The Ukrainian parliament has recently passed two crucial bills aimed at securing continued financial assistance from the International Monetary Fund (IMF). These bills focus on extending the military tax during the post-war period and implementing taxation on online platforms, although they represent only part of the legislative package required by the IMF.
In February, the IMF approved a new extended funding program for Ukraine worth over $8 billion, contingent upon the implementation of various reforms. Among these reforms, the Ukrainian government committed to increasing tax revenues, which includes taxing income from digital platforms, extending the military tax, taxing low-value import shipments, and imposing value-added tax (VAT) on individual entrepreneurs earning over 4 million hryvnias annually.
Despite the government’s commitments, the parliament faced significant political challenges that hindered the timely passage of these bills. The initial proposal for the OLX tax, aimed at digital platform revenues, garnered only 168 votes, falling short of the 226 needed for approval. This was largely due to a reluctance among lawmakers to support unpopular measures amid a political crisis.
Following the IMF’s mission to Ukraine and increased engagement from parliamentary leaders, including David Arahamia, the head of the ruling party, the situation improved. Meetings with key government officials, including President’s Office head Kyrylo Budanov and Prime Minister Yulia Svyrydenko, emphasized the importance of these legislative measures for unlocking vital funding.
The two bills that passed include the extension of the military tax and the taxation of digital platform revenues. The military tax, set at 5%, will now continue for three years after the end of the war, rather than being eliminated immediately after martial law. Finance Minister Serhiy Marchenko highlighted that the tax is essential for funding the country’s recovery and maintaining its military capabilities.
Amendments to ensure that all revenue from this tax is directed to a special fund for the Armed Forces were also introduced. However, concerns remain that this tax disproportionately affects legitimate businesses while those operating in the informal economy continue to evade taxation.
In contrast, the taxation of digital platforms was initially met with resistance but ultimately passed in its first reading with 234 votes. This legislation aims to regulate income from platforms like Uklon, Bolt, and Glovo, introducing a 5% tax rate on earnings, alongside an additional 5% military tax. Proponents argue that this could foster the growth of Ukraine’s gig economy, allowing workers to pay taxes transparently while maintaining flexible work arrangements.
Another contentious proposal involves taxing international parcels purchased from marketplaces like Temu and AliExpress. Previously, items valued under 150 euros were exempt from taxes, creating an uneven playing field for local producers. The new legislation seeks to address this disparity by imposing taxes on such imports, although non-commercial shipments valued at up to 45 euros will remain exempt.
Critics, including business leaders and economists, have voiced concerns that these tax changes could increase costs for consumers and disrupt the economy. The legislation will be implemented gradually, with the aim of minimizing potential disruptions to customs operations.
While the parliament successfully passed three out of four key measures required by the IMF, the issue of VAT for individual entrepreneurs remains unresolved, as the relevant bill has yet to be introduced in the legislature. Previous statements from party leaders indicated that raising taxes for individual entrepreneurs may not have sufficient support for a vote.
The Ukrainian parliament has passed two significant bills to secure IMF funding, focusing on extending the military tax and taxing digital platforms. However, further legislative actions are needed to fully comply with IMF requirements, particularly regarding VAT for individual entrepreneurs.