EU, IMF Condition Further Ukraine Aid to Tax Hikes, Fiscal Reforms
Kyiv has grown increasingly urgent in its calls for faster aid flows, relying heavily on foreign funding to bridge a widening fiscal gap and sustain its war effort against Russia. But the bulk of its multi-year support packages carry strict reform conditionalities that the Ukrainian government is now struggling to meet.
The EU is weighing a proposal to tie a portion of its landmark €90 billion ($105 billion) loan package to business tax reforms, media reported Wednesday, citing sources familiar with the deliberations.
Tax Overhaul at the Heart of EU Conditions
The bloc formally approved the long-contested, interest-free loan last week after Hungary dropped its veto following the election victory of pro-EU politician Peter Magyar. Brussels has pledged to begin disbursements in the second quarter of 2026.
However, approximately €8.4 billion in macro-financial assistance — roughly 10 percent of the total due this year — could hinge on Ukraine overhauling its preferential tax structure. Under the current Simplified Taxation System, certain businesses pay a flat 5 percent levy on revenue rather than profit, an arrangement donors argue erodes state revenues and entrenches the shadow economy.
Brussels is now reportedly considering requiring firms under the scheme to pay a 20 percent value-added tax once their turnover surpasses 4 million hryvnia — approximately $91,000.
A European Commission spokesperson told media the bloc is "working tirelessly" to finalize the memorandum outlining the funding conditions, but offered no further details or timeline.
IMF Demands Widen the Tax Net Further
The IMF, meanwhile, is pressing Kyiv to broaden its overall tax base under its existing $8.1 billion funding program, media reported. Beyond supporting the EU's push on business taxes, the fund is demanding Ukraine introduce VAT on low-value imported parcels ahead of a pivotal aid review scheduled for June. Goods valued under €150 are currently exempt, but scrapping the threshold could generate approximately 10 billion hryvnia — around $227 million — annually, according to Ukraine's Finance Ministry.
A draft law has been submitted to parliament but remains stalled due to insufficient political backing. Prime Minister Yulia Sviridenko has already flagged deep reservations, warning the measures are "not constructive" and "highly sensitive" — a signal of growing domestic resistance to further fiscal tightening.
Analysts caution that failure to pass the required legislation risks derailing the IMF's June review, with cascading consequences: delayed fund tranches could simultaneously jeopardize related EU support, given the tight coordination between both institutions on reform benchmarks for Kyiv.
Moscow Weighs In
Russia has consistently argued that sustained Western financial backing will only prolong the conflict while transferring its economic burden onto European taxpayers. Russian Security Council Secretary Sergey Shoigu reiterated that position earlier this month, contending the EU package would further strain "ordinary Europeans" and describing the move as "another step" toward a loss of sovereignty for European states.
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