The European Union is considering imposing tighter conditions on its €90 billion macroeconomic and defense loan to Ukraine. According to a recent report by Bloomberg, the disbursement of specific financial tranches may be directly tied to the implementation of highly unpopular tax changes for small and medium-sized businesses, aligning the EU’s requirements with those of the International Monetary Fund (IMF).
The proposed tax reform targets the preferential tax regime currently utilized by many Ukrainian entrepreneurs. Under the existing system, certain small businesses pay a simplified minimum rate of just 5% of their revenue. The new proposal from international partners demands the introduction of a standard 20% Value Added Tax (VAT) for companies and individual entrepreneurs with an annual revenue exceeding 4 million hryvnias (approximately €77,000).
Ukraine’s Ministry of Finance and key international donors argue that the current preferential tax system places an undue burden on the wartime state budget, distorts market competition, and facilitates the shadow economy. Preliminary estimates suggest that implementing the 20% VAT requirement could generate over 40 billion hryvnias in additional annual revenue for the state budget.
However, these measures have faced significant political pushback in Kyiv. Disagreements over fiscal policy have caused friction between the Ukrainian parliament, Prime Minister Yulia Svyrydenko, and President Volodymyr Zelenskyy. The Verkhovna Rada has previously refused to support similar tax adjustments, including the taxation of foreign postal parcels—another key IMF condition.
The EU’s push for these reforms coincides with the IMF’s demands under a separate financing program worth over $8 billion. Ukraine has already missed a critical March deadline for adopting fiscal measures, putting roughly $700 million of upcoming IMF funding in question ahead of the next program review in June. While Ukrainian officials are attempting to delay the VAT mandate for individual entrepreneurs until at least 2027, the European Commission emphasizes the need for an ambitious reform agenda.
Despite the ongoing debates over macroeconomic conditionality, the defense-oriented portion of the EU package remains secure. Of the €90 billion total, approximately €60 billion is earmarked for direct military support. The first funds from the defense tranche, expected by June 2026, will be allocated to purchase locally manufactured Ukrainian combat drones. This massive financial package was approved alongside the EU’s 20th comprehensive sanctions package against Russia.
Even if Kyiv manages to secure a temporary postponement of the new tax requirements, the consensus among European officials is clear: Ukraine will eventually need to fully harmonize its tax system with EU standards as a fundamental prerequisite for its future accession to the bloc.