To the President of Ukraine

To the Prime Minister of Ukraine

To the Chairman of the Verkhovna Rada of Ukraine

To the Minister of Finance of Ukraine

 

Regarding the legislative initiative

of the Ministry of Finance of Ukraine on mandatory registration

as a VAT payer for single tax payers

 

Dear representatives of the authorities!

We, representatives of 17 business associations (BAs), comprising more than 500 SME business associations that have joined forces in the BA Alliance, recognizing our shared responsibility for the recovery, preservation, and sustainable development of Ukraine’s economy, appeal to the President of Ukraine, the Prime Minister of Ukraine, the Chairman of the Verkhovna Rada of Ukraine, and the Ministry of Finance of Ukraine with the following:

On December 18, 2025, the Ministry of Finance of Ukraine published a draft law of Ukraine “On Amendments to the Tax Code of Ukraine Regarding the Registration of Single Tax Payers as Value Added Tax Payers” and a corresponding regulatory impact analysis (RIA).

The Alliance’s business associations are concerned about the Ministry of Finance’s initiative to “abolish the VAT registration exemption” for single tax payers and establish a threshold for their mandatory transition to VAT. Its implementation will have extremely negative consequences for the country’s economy. In particular:

1.1. Administrative shock for microbusinesses. VAT means significantly more complex accounting, reporting, risk of errors, the need for professional support, and additional costs. For microbusinesses, this often means closure, shadowing, or artificially lowering turnover in order not to “cross the threshold.” According to estimates by independent analytical centers, the additional counterproductive costs of entrepreneurs for accounting and tax administration will amount to UAH 61-115 billion per year.

1.2. Risks of tax invoice blocking and cash flow gaps. The problem of tax invoice suspensions/blocking and the complexity of unblocking procedures is a real experience of current VAT payers. A massive expansion of the circle of VAT payers without prior guaranteed elimination of these risks will lead to cash flow gaps, conflicts with contractors, disruption of supplies, and losses for both businesses and the budget.

1.3. Negative effect on local community budgets. The simplified system is one of the key sources of stable revenue for communities. Any decisions that provoke the closure of sole proprietorships, a reduction in turnover, or a shift to the shadow economy will result in a decline in local revenues and, consequently, a weakening of communities’ ability to provide basic services in wartime.

1.4. The initiative is particularly dangerous for frontline and affected regions. In frontline communities, businesses operate under shelling, with interruptions in electricity supply and logistics, staff shortages, and a lack of effective demand. Additional tax and administrative pressure here does not mean “de-shadowing,” but rather a reduction in entrepreneurship. Such regions need special conditions and exceptions, not “the same rules for everyone.”

1.5. Lack of trust without public models and calculations. Tax changes of this magnitude should only be adopted after open modeling of scenarios and assessment of the consequences for all stakeholders: how prices will change, what losses local budgets will incur, what administrative costs taxpayers and the state will face, etc. The “let’s introduce it first, then see what happens” approach is unacceptable in a war economy.

The stated goal of this bill is to ensure revenues to the state budget, level the playing field, and combat tax evasion schemes. To achieve this goal, Alliance representatives believe it is necessary to:

• Introduce clear criteria for labor relations at the legislative level to minimize the “sole proprietorship instead of hiring” scheme and a separate clear set of criteria to minimize “splitting” schemes;
• Ensure systematic control over taxpayers in sectors with a high degree of abuse and analysis of supply chains, ensure monthly publication of information on average wages and tax burdens in the top 50 entities in the most risky industries.
• Conduct a complete reboot of the commissions with the participation of international experts from the State Tax Service and the Financial Monitoring Service, accelerate the reboot of the State Customs Service in accordance with the adopted law;
• Legislate quality KPIs for the BEH, STS, and DMS, which should be aimed at minimizing the tax gap;
• Make the NBU’s criteria regarding “bushes of sole proprietors” mandatory, which are currently only recommended to banks. It is also necessary to adopt a law on “drops,” in particular the introduction of a register of drops – a draft law of the NBU;
• it is important for minimizing schemes for concealing real turnover to introduce economic incentives for buyers of excisable products to obtain fiscal receipts (fiscal receipt lotteries, financial incentives for consumers).

We propose:

• The Cabinet of Ministers of Ukraine to initiate a review of the National Revenue Strategy in terms of approaches to the simplified system and VAT, excluding decisions that are actually aimed at curtailing the simplified system by expanding VAT obligations for small taxpayers. The draft law on “VAT for the simplified taxation system” should not be submitted to the Verkhovna Rada.
• Before any expansion of the circle of VAT payers, it is necessary to ensure a radical simplification of VAT administration for existing payers: maximum automation of procedures, reduction of manual intervention, transparent and stable risk criteria, predictable deadlines for document review, effective appeal mechanisms, and reduction of the practice of blocking tax invoices.
• The government should introduce a simplified accounting and reporting system for micro and small businesses under the general taxation system, which will allow businesses to voluntarily scale up and transition from the simplified system without administrative shock. This is a constructive alternative to the forced expansion of VAT to small businesses.
• Introduce a moratorium on any increase in the tax and administrative burden on frontline businesses until the end of martial law and for 12 months thereafter.

We would like to emphasize the need to initiate consultations with the IMF and other international partners on revising/modernizing the relevant VAT obligations for single tax payers, taking into account the current security situation. Ukraine should propose an alternative package of prior actions that would have a real fiscal effect without destroying micro and small businesses: anti-abuse rules against fragmentation and “sole proprietorship instead of hiring,” reform of VAT administration, reboot of the State Tax Service/State Customs Service, and measurable KPIs aimed at reducing the tax gap.

The Alliance representatives call on the authorities to take into account the reservations and proposals set out in the appeal and to initiate a professional, inclusive dialogue between business and the authorities in order to develop balanced economic and tax policy projects.

 

Yours sincerely,

Alliance BO

 

Signatories:

Coalition of Business Communities for the Modernization of Ukraine

National SME Platform

Women’s Business Support Platform

Ukrainian Chamber of Commerce and Industry

Ukrainian Cluster Alliance

Ukrainian Business Council

Innovative Projects Support Platform

Sumy Coalition of Business Associations

Technological Sustainability Platform

Kharkiv Coalition of Industry and Business Communities “KOHA”

Network of Business Support Organizations for Ukraine’s European Integration

InterUAction Business Association Interaction Platform

Tech Synergy Business Association Interaction Platform

Ukrainian Export Alliance

Ukrainian Maritime Cluster

Coalition of Mediators for the Development of the Mediation Services Market in Ukraine

Open Business Platform “POSTUP BOIKIVSHCHYNY”

Coalition for the Promotion of Entrepreneurship and Strengthening of the Economy of Territorial Communities