The Mykolaiv Regional Council has asked the Cabinet of Ministers not to introduce VAT for small businesses

The Mykolaiv Regional Council has appealed to the Verkhovna Rada and the Cabinet of Ministers regarding the introduction of value added tax (VAT) for small and medium-sized businesses with an annual income exceeding 4 million hryvnias. The MPs are asking for the simplified taxation system without VAT to be retained, as otherwise there could be social unrest among the population and entrepreneurs could face bankruptcy.

The deputies adopted the decision at a meeting today, 16 April, according to NikVesti.

Councillor Olena Herasymchuk noted that resolving this issue is important not only for the Mykolaiv region but for the whole of Ukraine. She explained that the IMF had recommended amending the Tax Code to introduce an additional tax – value added tax (VAT) – for small and medium-sized businesses operating under the simplified taxation system. Olena Herasymchuk noted that this tax is one of the most complex and requires significant administrative costs.

«This will mean that from 1 January 2027, as soon as this tax is introduced, we can expect a sharp rise in prices, by at least 30–35%. The tax itself is 20%, plus 5% for administration, plus 5–10% to cover risks. Among small and medium-sized businesses, this will undoubtedly cause a significant backlash and discontent. In addition to these percentages, which will place a burden on businesses, it should be noted that from 1 January 2027, entrepreneurs or business entities currently operating without VAT and switching to the tax itself will have to tax their remaining balances at a rate 20% higher. The mark-up on those balances could be 10–12%. In other words, the introduction of VAT will lead to the bankruptcy of a large number of business entities,» noted Olena Herasymchuk.

The deputies supported the appeal, voting 42 in favour.

The appeal states that the introduction of VAT for the simplified taxation system is proposed as a tool to combat smuggling, «grey schemes» and the fragmentation of large businesses.

«We consider this approach to be economically unjustified and socially dangerous. These initiatives will not solve the problem of the shadow economy, but will create a real threat of closure for thousands of businesses, particularly in rural areas and frontline territories, and will lead to a decline in the population’s purchasing power, job losses and an increase in the shadow economy,» the appeal states.

Members of the regional council are calling for the simplified taxation system to be retained without mandatory VAT registration and for the Ministry of Finance’s proposed draft legislation on its introduction to be rejected.

Full text of the deputies’ appeal.

Photo report

Background

Members of the Mykolaiv City Council appealed to the President of Ukraine, Volodymyr Zelenskyy, the Verkhovna Rada and the Cabinet of Ministers, demanding that the tax burden on local entrepreneurs not be increased.

As early as 27 November, it became known that Ukraine had agreed to new requirements from the International Monetary Fund, which, in particular, provide for the abolition of certain tax breaks. This is a condition for receiving the next IMF loan tranche.

Specifically, there are plans to introduce an additional tax burden for sole traders with an annual income exceeding one million hryvnias — they will be required to pay value added tax.

This information was subsequently officially confirmed by the IMF, which emphasised that Ukraine’s compliance with the Fund’s requirements is a necessary condition for the provision of an $8 billion loan.

In turn, Danylo Hetmantsev, chair of the parliamentary committee on finance, tax and customs policy, stated that the introduction of value added tax for sole traders is primarily the fault of «cunning» big business and the inadequate work of tax officials.

On 12 January, the Association of Ukrainian Cities appealed to the Cabinet of Ministers, the Verkhovna Rada and the President of Ukraine regarding the inadmissibility of introducing a mandatory value-added tax for single-tax payers.

The appeal emphasises that the introduction of VAT for the simplified taxation system could lead to the shadow economy, job losses and, consequently, a reduction in revenue for local budgets. The Mayor of Mykolaiv, Oleksandr Sienkevych, also took part in this process.