IMF Backs Ukrainian Tax Reform to Curb Evasion and Level Playing Field for Compliant Businesses

Priscilla Toffano outlines IMF-backed reforms targeting Ukraine's VAT base and simplified tax system to promote equity and curb evasion.

By: AXL Media

Published: Mar 16, 2026, 10:00 AM EDT

Source: Information for this report was sourced from Interfax-Ukraine

Strategic Rebalancing of the Ukrainian Tax Framework

The International Monetary Fund is pushing for a fundamental shift in Ukraine’s fiscal policy to ensure that the financial burden of the ongoing war effort is distributed more equitably across the economy. Priscilla Toffano, the IMF Resident Representative in Ukraine, emphasized that the current initiatives are not an assault on small enterprises but a necessary correction of a system that has become skewed. According to Toffano, compliant businesses have expressed growing frustration over repeated rate hikes on a narrow group of existing taxpayers, including increases in the military levy and corporate taxes on financial institutions. The new strategy focuses on taxing consumption that has historically escaped the net, thereby reducing the pressure on the country’s most transparent economic actors.

Aligning National Policy with European Integration Goals

A central component of the reform involves adjusting the Value Added Tax (VAT) thresholds to meet European Union requirements, a critical step for Ukraine’s accession ambitions. The proposal to mandate VAT registration for entities with an annual turnover exceeding UAH 4 million, approximately EUR 85,000, mirrors standards found across the EU. Toffano pointed out the stark disparity in taxpayer density, noting that Ukraine currently has only 0.5 registered VAT payers per 100 people, compared to an EU average of 7.7. In Poland, the number of registered VAT payers is nearly ten times higher than in Ukraine, highlighting a significant gap in the formalization of the Ukrainian economy that the IMF program seeks to bridge.

Addressing Structural Loopholes in Simplified Taxation

The IMF representative raised significant concerns regarding the evolution of the simplified taxation system, which was originally established in the late 1990s as a temporary support mechanism for micro-enterprises. Over time, the regime has reportedly been co-opted by larger entities through manipulative practices such as company splitting and the deliberate underreporting of turnover to stay beneath tax thresholds. According to Toffano, these "artificial barriers" prevent genuine company growth while allowing large-scale operations to minimize their liabilities unfairly. By reforming these rules, the Fund aims to eliminate the incentives for businesses to remain artificially smal...