Ukraine’s updated memorandum with the IMF marks a significant shift in tax policy. Whereas previously the Fund’s programmes were often perceived by businesses as a set of requirements designed to rapidly fill the budget — through tax rate increases, the abolition of tax breaks and tighter controls — the document now, for the first time, places a different emphasis: the state must not only combat tax evasion but also reduce the tax administration costs borne by law-abiding businesses.
This shift was the result of a lengthy dialogue between Ukrainian think tanks and the IMF and the World Bank. CASE-Ukraine, the Institute for Social and Economic Transformation and the Economic Expert Platform provided their partners with analysis and calculations that revealed the true cost of Ukrainian bureaucracy. According to a study by CASE-Ukraine and Info Sapiens, businesses operating under the general VAT system spend an average of 478.2 person-days per year on tax and accounting. For the simplified system without VAT, this figure stands at 114.5 person-days. In other words, the difference is almost fourfold.
This explains why some businesses seek to remain on the simplified system or resort to artificial fragmentation. It is not just a matter of lower rates, but also of a desire to avoid complex VAT administration, discretionary decisions and the risk of audits.
The new memorandum also shows a noticeable shift in focus compared with previous documents. Direct references to the National Revenue Strategy to 2030, which had been criticised by businesses and experts for its excessively strict and risky provisions, have been removed. Instead, the IMF has focused on institutional reforms, combating the shadow economy and closing down specific schemes — particularly in customs, the State Fiscal Service, transfer pricing and duty-free ‘parcel’ imports.
A separate section deals with the simplified taxation system. Analysts emphasise that it is important not to penalise genuine micro-businesses, but to distinguish them from schemes where medium-sized or large companies channel their turnover through dozens of controlled pseudo-sole traders. According to experts’ estimates, such practices could cost the budget 10–15 billion hryvnias in lost revenue, with the retail and restaurant sectors being the hardest hit.
At the same time, mechanically applying strict European practices – such as comprehensive stock accounting for small business owners – in Ukraine could do more harm than good. For approximately 1.5 million genuine sole traders, this would create an excessive burden, whilst paper-based record-keeping would not deter fraudsters, who are already able to purchase source documents through ‘conversion centres’.
The solution should be risk-based supervision: identifying pseudo-franchises, pseudo-marketplaces and networks where sole traders are not, in fact, independent entrepreneurs, do not bear any risks and operate using the assets of the scheme’s organiser. Such structures need to be reclassified according to clear GAAR/ATAD criteria, without complicating the entire simplified system.
To ensure that these changes do not remain merely on paper, Ukraine needs concrete steps: public KPIs for the State Tax Service, focused not on the amount of fines but on reducing the shadow economy; reform of VAT and the Single Tax on Corporate Income, limiting the blocking of tax invoices to 30 days; a comprehensive overhaul of the State Electronic Banking System (BEB) and customs; and regular measurement of the bureaucratic burden on business using the Standard Cost Model.
The new memorandum offers an opportunity to change the logic of fiscal policy: rather than putting greater pressure on those who are already paying, it aims to crack down on large-scale shadow economy schemes whilst simultaneously making life easier for honest taxpayers.