Will taxes for sole traders triple? What the IMF is demanding and why there is no need to panic – expert commentary
A loan at the cost of taxes – the new International Monetary Fund (IMF) programme, approved at the staff level, will cost Ukraine $8.1 billion and a whole series of tough tax reforms. To receive funding, Ukraine has adopted ‘structural benchmarks’, the main one being a relentless fight against tax minimisation schemes. This means the abolition of privileges, higher requirements for sole proprietors, and a complete review of domestic revenue sources. The National Bank and the Ministry of Finance confirm that the agreement focuses on maintaining stability but requires Ukraine to stop inefficient spending and introduce fiscal discipline.
No bright future for sole proprietors
Prime Minister Yulia Svyrydenko, commenting on the negotiations with the IMF, avoided directly mentioning tax changes, but emphasised the government's readiness to ‘implement policies to combat the shadow economy, fight corruption and strengthen public sector management.’
According to unofficial sources and MP Yaroslav Zheleznyak, Ukrainian government officials have committed to implementing the following unpopular measures:
- Abolishing tax breaks for businesses and households, as well as avoiding the introduction of new ones.
- Introducing VAT for sole traders with an annual income of over 1 million hryvnia (currently approximately 83,000 per month).
- Taxing income earned through digital platforms (the so-called ‘OLX tax’) and Ukraine's accession to the EU's DAC7 directive.
- Reviewing the exemption for duty-free imports of parcels from abroad with a value exceeding €150.
- Introducing criteria for determining employment relationships to combat schemes that disguise employees as sole proprietors.
- Not abolishing the military tax even after the end of the war.
Who is affected by the changes
The most controversial point remains the obligation to abolish exemptions from mandatory VAT registration for the simplified system. This directly affects 170,000 to 250,000 sole proprietors, mainly in the IT, consulting and professional services sectors, whose income exceeds UAH 1 million per year.
Anatoliy Amelin, Director of Economic Programmes at the Ukrainian Institute for the Future, believes that this step will have disastrous consequences: taxes will triple and business will go underground.
For an IT specialist, consultant, designer or tutor with an income of two thousand dollars, this means a threefold increase in taxes. From an effective rate of 7% to 20-22%. Instantly, the expert emphasises. An individual entrepreneur with an income of two million a year currently pays around 140,000 hryvnia. After the reform, it will be 380-430 thousand. The difference is a quarter of a million.
Director of Economic Programmes at the Ukrainian Institute for the Future
Amelin believes that as a result of these changes, 100–150 thousand entrepreneurs will choose to go ‘underground’ (income fragmentation, cryptocurrency, P2P transfers, working through foreign jurisdictions), and another 10–25 thousand highly qualified specialists will emigrate (to the UAE, Cyprus, Portugal). As a result, although the government expects to receive an additional 15–20 billion hryvnia from VAT, the expert is confident that the net budget losses will amount to 12–20 billion per year. He also highlights a paradox: the government is proud of the benefits it offers to IT giants (Diia.City), but is ‘destroying sole proprietorships, the foundation from which these companies grow.’
Alternative approaches
Anatoliy Amelin also proposes alternative ways to fill the budget, which for some reason are ignored by the government and could have a greater effect than putting pressure on small businesses. He points out that Ukraine has one of the largest state apparatuses in Europe:
- Reducing the state apparatus by 20–30%. Savings – 30–50 billion per year.
- Combat smuggling (illegal imports of tobacco, fuel, alcohol), which leads to losses of 50-80 billion annually.
- Reduce corruption rents (tens of billions).
Don't panic
‘This is one of the points proposed by the IMF for the future memorandum. One of the proposed points, if the IMF provides Ukraine with funds, is a likely point that is not there,’ economist Oleg Pendzin has a different opinion on the catastrophic taxation of sole proprietors and the associated panic.
He emphasises that the wave of discussion is overly emotional and premature, as there is no official legislative basis.
Please name me at least one bill to amend tax legislation that has been submitted to the Verkhovna Rada. There isn't one. There is no IMF programme, no memorandum signed by the government, no bill in the Verkhovna Rada – there is nothing
Економіст
These are just talks
‘To date, this programme has been agreed at the staff level. Until the International Monetary Fund's Board of Directors makes a decision, it's nothing more than talk. And the IMF Board of Directors will not make a decision on the programme if there is no reparations loan, and there definitely won't be one.’
Pendzin acknowledged that the problem of tax minimisation through sole proprietorships exists, citing the example of how large companies (restaurants, supermarkets) use a simplified system to evade full taxation. Oleg Pendzin also added that, historically, not all of the IMF's requirements in previous memoranda have been fulfilled (for example, bringing energy prices for the population in line with market prices). Therefore, he advises that when someone starts raising such a ‘hyped’ topic, always ask: ‘Tell me the number of the bill that is currently in the Verkhovna Rada regarding changes to the tax code. There isn't one. And that's that.’
[ People are very emotional right now, very tired of the war, and it's very easy to start another hype topic at the moment... There are proposals from the International Monetary Fund, many of them. But that doesn't mean they will be in the memorandum. This does not mean that we will be given this programme at all
Економіст
As a reminder, the state-owned PrivatBank has added a new feature for entrepreneurs to Privat24 – payment of a single tax and other budget payments. This option is available to all individual entrepreneurs in the updated version of the mobile application.
