The draft law proposed by the Ministry of Finance “On Amendments to the Tax Code of Ukraine Regarding the Registration of Single Tax Payers as Value Added Tax Payers,” which changes the system for sole proprietors by introducing VAT for them, eliminates the very philosophy of the simplified taxation system, according to Taras Onishchenko, partner at the law firm Barristers Commercial.
“The proposed changes effectively eliminate the very philosophy of the simplified taxation system, which was created to support and develop the middle class. The introduction of VAT for microbusinesses with a turnover of UAH 1 million looks like an attempt to solve budget problems at the expense of the least protected market participants. Although the Ministry of Finance refers to the requirements of the IMF and the need for European integration, the implementation of these changes without a significant increase in the registration threshold could lead to the disappearance of legal small businesses as a class,” he told the Interfax-Ukraine news agency.
Onishchenko noted that the only criterion for mandatory VAT registration is “an income threshold of UAH 1 million over the last 12 calendar months.”
“In practice, this means that any entrepreneur — whether a coffee shop owner, hairdresser, IT specialist, or salesperson in a local store — will be required to obtain VAT payer status if they exceed this limit. The only exception is for a narrow category of e-residents. Thus, the state plans to cover almost the entire spectrum of small businesses with VAT, from market trading to the provision of household services, which was previously the prerogative of the general taxation system,” he said.
The expert noted that “the government’s intentions are serious and clearly planned in terms of timing; in particular, in response to an appeal from the National Association of Lobbyists of Ukraine, the Ministry of Finance disclosed details of agreements with international partners.”
According to the Ministry of Finance, the introduction of VAT for “simplified taxpayers” is part of the implementation of the conditions of the new 48-month cooperation program with the International Monetary Fund (Extended Fund Facility – EFF), an agreement on which was reached at the expert level on November 26, 2025. This program provides access to $8.1 billion in financing.
The reform schedule provides that amendments to the Tax Code will be submitted to the Verkhovna Rada in January 2026, and from January 1, 2027, the requirement for mandatory VAT registration for all “simplified taxpayers” with a turnover of more than UAH 1 million will become mandatory.
At the same time, the lawyer notes that the Ministry of Finance expects the reform to have a fiscal effect of more than UAH 40 billion in additional budget revenues in the first year of its implementation.
At the same time, Onishchenko believes that this initiative carries much deeper risks that could offset the potential fiscal benefits.
“The most critical point is the threshold of UAH 1 million itself. In the current inflationary environment, this amount is equivalent to a turnover (not profit!) of UAH 83,000 per month. This is an indicator of a microbusiness, which is often run by one person or a family. Forcing such businesses to administer VAT is placing an excessive administrative burden on them,“ he explains.
The expert also predicts an increase in the shadow economy and a mass exodus of businesses into the ”shadow.”
“Entrepreneurs whose turnover fluctuates between UAH 1.5-2 million will be faced with a choice: either raise prices by 20% and hire an accountant, losing competitiveness, or split the business among relatives, or switch to cash payments ‘off the books’ so as not to artificially exceed the limit of UAH 1 million.
Meanwhile, large and medium-sized taxpayers who use simplified tax systems in their work will be able to simply increase their number and continue to use them,” he said.
Onishchenko also predicts that the introduction of tax changes will lead to higher inflation and more expensive goods and services for end consumers. He estimates that the cost of a haircut, shoe repair, or coffee will automatically increase by at least 20%, which will trigger a new round of inflation in the service sector, and these changes will also lead to increased corruption risks.
“It is also worth considering the problem of blocked tax invoices. While this is currently a headache for medium and large businesses, after the reform, thousands of small entrepreneurs may become hostages of the system. For small businesses, even a week-long stoppage due to bureaucratic obstacles can be fatal,” he stressed.
Onishchenko noted that “although the Ministry of Finance refers to the requirements of the IMF and the need for European integration, the implementation of these changes without a significant increase in the registration threshold could lead to the disappearance of legal small businesses as a class.”
“That is why it is critically important for the business community to join the discussion of this bill on the Ministry of Finance website while it is still in the consultation stage,” the expert emphasized.
