To the President of Ukraine

To the Prime Minister of Ukraine

To the Chairman of the Verkhovna Rada of Ukraine

To the Chairman of the Verkhovna Rada Committee on Finance, Tax and Customs Policy

Minister of Finance of Ukraine

Regarding the legislative initiative

of the Ministry of Finance of Ukraine on mandatory registration

as VAT payers for single tax payers

 

Dear representatives of the authorities!

The Ukrainian Business Council (UBC), which is an association of business associations created to consolidate business and implement socially important reforms for the sustainable economic development of the country, comprising 127 business associations with 27,000 member companies from various sectors of the economy, express their respect to you and address 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 the corresponding regulatory impact analysis (RIA).

Representatives of business associations have analyzed the published materials in detail and concluded that the RIA calculations for the draft law are based on assumptions that do not correspond to the real situation.

According to the assumptions presented in the RIA, the costs of VAT administration amount to an additional 56 man-hours per year. This is an extremely low estimate, as confirmed by data from a 2024 World Bank survey, which states that Ukrainian businesses spent 74.4 days per year on tax administration alone in 2024, which is equivalent to 595 man-hours per year. In other words, the ARV value is ten times lower than the actual figure.

In addition, to determine the costs in the ARV of the Ministry of Finance, the minimum wage was used, which does not correspond to the actual conditions of payment for a qualified employee, such as an accountant. Keeping records and administering VAT without the appropriate qualifications creates risks of fines and blocking of tax invoices for the business entity. For the purposes of this calculation, it is worth taking the average salary of an accountant, which according to our data is 26,000 hryvnia per month.

Thus, unproductive costs for 660,000 entrepreneurs, to whom the legislative changes should apply, will amount to between 61.4 billion hryvnia/year (an estimate of labor costs that does not take into account full accounting according to World Bank data) to UAH 115.7 billion per year (according to a representative survey by Info Sapiens, commissioned and conducted using the methodology of CASE Ukraine). It should also be noted that businesses are likely to face a shortage of qualified accountants and an increase in the cost of services provided by working specialists. According to the Ministry of Finance’s calculations, which are presented in the ARV, the expected revenues to the state budget amount to UAH 40.1 billion. As a result, we have a negative socio-economic effect from the new regulation: in order for the budget to receive UAH 40.1 billion per year, entrepreneurs will have to bear UAH 61-115 billion in unproductive costs per year.

In addition, the ARV did not reflect the fact that if all taxpayers on the simplified system with an annual turnover of more than UAH 1 million are registered as VAT payers, the expenses of households, which are end consumers, will increase, which will have a direct impact on public welfare, inflation rates, and GDP.

According to the results of the assessment of this draft law by URB experts, the implementation of this initiative increases the risks of:

• an increase in the shadow economy, fragmentation, and closure of a significant number of sole proprietorships due to a significant increase in administrative costs for maintaining full accounting records;
• slow recovery of regions (frontline, de-occupied) – complications in conducting activities against the backdrop of difficult external conditions;
• an outflow of a certain number of citizens with an active entrepreneurial position abroad, increasing the labor shortage in Ukraine;
• a decline in business activity, the updated World Bank’s ease of doing business ranking, the Index of Economic Freedom, and Ukraine’s investment attractiveness.

The Ukrainian Business Council insists that it is unacceptable to introduce a selective, one-sided, and out-of-context requirement to implement EU Council Directive 2006/112/EC on the common system of value added tax regarding mandatory VAT registration for single tax payers. Ukrainian business considers it expedient for the Government and Parliament to focus their efforts on combating “gray schemes” and comprehensively adapting Ukraine’s tax legislation to the general requirements of the EU for accession to the EU Customs Union, taking into account the requirements to abolish the duplication of tax invoices and invoices and to introduce European requirements for VAT invoices in Ukraine, as well as to simplify VAT administration.

To combat “gray schemes,” particularly those involving the use of sole proprietorships, countries around the world are implementing systemic measures that need to be introduced in Ukraine, as well as key institutional reforms:

• 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 burden 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 urge 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.

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.

It is also important to 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.

In addition to the above, we draw your attention to section 4.3.1 of the National Revenue Strategy 2030, which states, in particular: “by raising the threshold for VAT registration.” The current threshold for the general system is significantly outdated and needs to be brought into line with current realities by indexing this threshold of UAH 1 million for the general system, which was established on January 1, 2015, to the amount of accumulated inflation for the period 2015-2025. For the simplified system, such a threshold for transition to VAT is not economically feasible and can only be implemented after accession to the EU at the upper limit in the EU, given the need to implement European directives.

In view of the above, the business community urges you to consider the proposals of business associations, hold a comprehensive discussion of the initiative proposed by the Ministry of Finance, and develop alternative solutions that are not harmful to conscientious businesses in order to achieve the goals stated in the Tax Code – creating a level playing field for doing business, increasing revenues to the state budget, and creating conditions to reduce the attractiveness of schemes for the sale of contraband and counterfeit goods.

 

Sincerely,

Business Associations

Members of the Ukrainian Business Council