The IMF demands an increase in certain taxes: what is behind the latest fiscal change

Ukraine has entered a new stage in its relations with the International Monetary Fund, one of the main sources of external financing that helps the country maintain macroeconomic stability during the war. The latest review of the EFF program confirmed that the IMF continues to support Ukraine but is putting forward new conditions, including the gradual increase of taxes and the narrowing of fiscal benefits.​

This decision has triggered an active public debate: is it appropriate to increase the tax burden in a country whose wartime economy is already operating on the verge of survival and whose businesses are in a state of constant transformation?​

Why the IMF insists on higher taxes
The IMF’s logic is based on the need to restore fiscal balance. In 2024–2025, Ukraine’s state budget deficit exceeded 20 percent of GDP, making it one of the highest figures in the world, with a significant share of needs covered by external grants and loans that cannot last indefinitely.​

The Fund insists that Ukraine should gradually move from external financing to self-sufficiency, which requires higher tax revenues, better administration, the reduction of shadow schemes, and the creation of a stable budget revenue base. As a result, several areas may come under the IMF’s requirements:​

• VAT and excise taxes. The possible cancellation of temporary exemptions for certain sectors, particularly agriculture, energy, and IT.​
• Personal income tax and unified social contribution. A reduction in the upper thresholds of non-taxable income and the gradual alignment of rates is under discussion.​
• Simplified taxation system. The Fund traditionally considers it overly liberal and may insist on its reform or restriction for certain categories of entrepreneurs.​

Goal: fiscal resilience, not “tax pressure”
The government is trying to frame the discussion not in terms of “tax hikes” but rather “tax optimization.” The Ministry of Finance emphasizes that the focus is not on increasing the overall fiscal pressure on business, but on a fairer distribution of the tax burden and combating evasion.​

Even during wartime, a significant volume of tax benefits remains in place, reducing budget revenues by tens of billions of hryvnias each year, and some of these incentives are political rather than economic in nature. These are precisely the “gifts” the IMF recommends revising, with the ultimate goal of broadening the tax base while keeping rates moderate.​

Political dimension of the talks
IMF financial assistance is not only an economic tool, but also a political one, serving as a kind of guarantee of trust from other donors such as the World Bank, the EU, Canada, and the United States. If the IMF concludes that Ukraine’s tax policy is out of control or artificially lenient toward certain sectors, this may slow down financing from other partners.​

Therefore, the government has to strike a balance: on the one hand, preserving social stability and supporting business, and on the other, maintaining the confidence of international creditors. According to unofficial information, the current compromise implies only a partial increase in specific taxes, coupled with stricter tax administration and further de-shadowing of the economy.​

Potential impact on business
Ukrainian business has traditionally viewed any increase in the tax burden with skepticism. Since 2022, entrepreneurs have already endured a series of crisis decisions, from higher military levies to new currency control rules, so even minor tax hikes could prove critical for small businesses under these conditions.​

The greatest concern is caused by the possible reform of the simplified tax system, as hundreds of thousands of entrepreneurs who provide jobs and fund local budgets fear losing their competitive edge. The IMF, however, sees this not as pressure, but as a way to ensure tax equity between sole proprietors and legal entities.​

At the same time, experts stress that, if implemented transparently and with due regard to wartime realities, the changes could even stimulate development. For example, expanding electronic administration tools, eliminating duplicative controls, and introducing automatic refunds of overpayments would help create a more predictable environment for investors.​

Social risks of higher taxes
Any tax increase during wartime affects not only businesses but also households. Rising indirect tax rates such as VAT and excise duties inevitably feed into higher prices, raising the risk of accelerating inflation, which already exceeds the National Bank’s targets.​

The government is trying to offset potential imbalances through social support programs for vulnerable groups, but this again inflates budget spending. As a result, the state is treading a fine line between meeting IMF requirements and staying within the real capabilities of the economy.​

Outlook and political responsibility
Tax increases always have a political dimension in addition to the economic one, and any misstep can undermine public trust in the government, especially in wartime. The key question therefore is how to implement fiscal changes while preserving legitimacy and public support.​

Gradualism, predictability, and clear communication with society are the three main principles without which even the most rational tax reform can fail. If Ukraine manages to balance IMF demands with its own economic interests, the outcome may be not only financial stability, but also a stronger state sovereignty.​

Author – Maksym Bahniuk, head of the tax and customs law practice at the law firm “Legal Company WINNER”.​
If you have any questions or issues related to the application of new tax rules, clarifying IMF requirements, or adapting your business to these changes, please contact the experts at Winner Legal Company, who will help you assess risks and find the best solution for your situation.​