VAT in Ukraine may be increased to 21%: almost 79% of Ukrainians do not support the authorities’ arguments

Ukraine is discussing the possibility of increasing the standard VAT rate from the current 20% to 21% in 2027. At the same time, more than a third of Ukrainians have not heard of such an initiative at all, and almost 79% of respondents are not convinced by the argument about the need for additional funds to insure businesses against war risks.

Almost 44% of Ukrainians know about a possible VAT increase. Another 22.6% of respondents have heard of the idea, but do not know its details.

For 33.7% of survey participants, the information about a possible tax increase was new.

These results were shown by the Active Group study.

Why do they want to increase VAT in Ukraine

One of the reasons for discussing a VAT increase by one percentage point is to find sources of financing for the insurance system of Ukrainian businesses against war risks.

The model proposed by the Ministry of Economy provides for the creation of a special fund that will operate on the first loss principle.

It is assumed that the state, together with international partners, will assume the first level of losses of enterprises caused by Russian attacks.

Companies will be able to claim compensation for damaged or destroyed assets. The maximum amount of coverage can be up to $10 million for one enterprise.

To launch the system, they plan to form the starting capital of the fund at the level of $2–3 billion. Part of the financing must be provided by Ukraine, the rest is expected to be received from international partners.

One of the options for quickly filling the Ukrainian part of the fund is called increasing the standard VAT rate from 20% to 21%.

The budget has provided for almost 59 billion hryvnias

The draft state budget for 2027 has provided for business insurance against military risks and other financial support programs of 58.7 billion hryvnias.

The Ministry of Finance considers an increase in VAT only as one of the possible ways to fill the relevant fund.

Another 8.3 billion hryvnias are planned to be directed to the protection of fuel sector enterprises. A potential source of these funds may be an increase in excise duties on fuel.

Will prices increase after the VAT increase

Since VAT is an indirect tax, businesses can partially or fully include the additional tax burden in the final cost of goods and services.

At the same time, increasing the rate from 20% to 21% does not mean an automatic increase in all prices by 1%.

For example, if a product costs 100 hryvnias without VAT, its final price is now 120 hryvnias. At a VAT rate of 21%, it will be 121 hryvnias. That is, if the additional tax is fully transferred to the buyer, the price in this example will increase by approximately 0.83%.

The real impact will depend on the cost of goods, competition, and the ability of a particular business to transfer additional costs to the consumer.

Almost 79% of Ukrainians are not convinced by the explanation for the VAT increase

The majority of respondents are skeptical about the arguments for a possible tax increase.

Thus, 78.7% of respondents called the explanation about the need to increase VAT to finance business insurance against war risks unconvincing. 13.1% consider such an argument convincing.

Another 80% of respondents do not expect that the tax increase will contribute to better provisioning of the army or raising social standards. 12.2% of respondents hold the opposite opinion.

VAT increase not yet approved

Currently, the VAT rate in Ukraine remains at 20%.

Increasing it to 21% is only at the discussion stage. To change the rate, it is necessary to make amendments to the Tax Code and obtain a corresponding decision from the Verkhovna Rada.

As of the time of publication, the relevant government bill has not been submitted to parliament.