Ukraine Weighs Raising VAT Threshold for Sole Traders to UAH 2-3 Million Amid IMF Talks

Ukrainian authorities and experts are seeking a compromise on one of the most contentious IMF demands – the introduction of VAT for sole proprietors. Instead of a strict threshold of UAH 1 million in annual income, a proposal to increase it 2-3 times is being considered to protect small businesses and preserve the logic of the simplified tax system. This step could be key to meeting the conditions of the Fund’s new lending program, essential for the country’s macroeconomic stability.

What is the Essence of the Proposal?

The debate revolves around a specific figure. As previously reported, the current requirement of the International Monetary Fund involves introducing VAT for private entrepreneurs (sole proprietors) whose annual income exceeds 1 million hryvnias. However, this benchmark has drawn criticism.

The Director of the Centre for Economic Strategies, Gleb Vyshlinsky, has put forward a specific proposal, as reported by RBC-Ukraine. The expert considers the UAH 1 million threshold to be too low and proposes raising it to 2-3 million.

“The threshold should not be lower than the minimum income of first-group microbusinesses, so as not to undermine the very logic of the simplified system,”

Vyshlinsky noted.

Why Exactly UAH 2-3 Million?

The expert’s proposal is based on two key principles: protecting small businesses and minimizing risks to the budget. On the one hand, a higher threshold would preserve preferential conditions for a significant portion of sole proprietors operating on the edge of profitability. On the other hand, it creates an effective barrier against tax evasion.

“With such an income, it becomes quite unprofitable and complicated to split a business. And if the threshold is set higher, for example, at UAH 4 million, the risks of splitting would increase,”

explained Gleb Vyshlinsky.

Thus, the UAH 2-3 million threshold appears as an attempt to find a “golden mean”: businesses gain more breathing room, and the state gets a workable VAT administration mechanism without mass business fragmentation.

Context of Negotiations with the IMF

This proposal does not emerge in a vacuum. As experts point out, meeting the prior actions, including the reform of sole proprietors’ taxation, is a kind of “entry ticket” for launching a new large-scale IMF program. Recall that in November 2025, Ukraine and the Fund reached a staff-level agreement on a Stand-By program amounting to $8.2 billion (approximately UAH 295 billion at the exchange rate of January 2026*).

However, as government officials admit, Ukraine has not yet confirmed its readiness to fulfill all conditions, including introducing VAT for sole proprietors. Finance Minister Serhiy Marchenko previously stated that changes are expected, but not before 2027. The new expert proposal could become the basis for a negotiation compromise that would satisfy both the IMF and Ukrainian businesses.

What Does This Mean for Entrepreneurs?

• For micro-businesses (up to UAH 2-3 million in annual income): A high likelihood of maintaining current operating conditions under the simplified system without VAT.
• For growing companies: The emergence of a more comfortable “buffer” period for scaling before transitioning to the general taxation system.
• For the market as a whole: Reduced negative perception of the reform and minimized risks of artificial business splitting, which will support healthy competition.

Conclusion: A Chance for a Balanced Decision

The initiative to raise the VAT threshold is not just a technical adjustment but an attempt to find a politically and economically acceptable balance. On one hand, Ukraine urgently needs to continue cooperation with the IMF to support financial stability during wartime. On the other hand, the vulnerability of the entrepreneurial sector, which is key to economic recovery, cannot be ignored.

The proposal of UAH 2-3 million appears to be a rational step that could defuse tensions around this issue. The question now is whether Ukrainian authorities will lobby for this option in negotiations with the IMF and whether it can become part of the final reform package. The answer will determine not only the fate of the lending program but also the trust of thousands of Ukrainian entrepreneurs who expect predictable and balanced decisions from the government.

*Exchange rate as of 22.01.2026: ~1 USD ≈ 36.00 UAH. The calculation of the IMF program amount in hryvnia is approximate.