Ukraine is considering raising the standard VAT rate from 20% to 21% in order to set up an insurance fund for businesses that lose property as a result of Russian attacks. The Minister for the Economy and the Environment, Oleksandr Kravchenko, has described the VAT increase as one of the most realistic ways to raise the necessary funds quickly. Put simply, the proposal is for all consumers to contribute towards a business insurance scheme through their purchases of goods and services.
Briefly about the main points
- The government is considering raising VAT from 20% to 21%.
- They want to channel the funds into a business insurance fund to cover war risks.
- The fund’s capital is planned to be in the region of $2–3 billion.
- A single company will be able to receive compensation for losses of up to $10 million.
- The business itself will also pay an insurance premium — approximately 2% of the sum insured.
- The programme could be launched in 2027, but no final decision has yet been made.
VAT from 20% to 21%: where they intend to get the money from
The Ministry of Economy is working on setting up a special fund to compensate businesses for part of their losses following Russian missile and drone attacks.
According to Oleksandra Kravchenko, Ukraine needs start-up capital of approximately $2–3 billion. There is currently no spare public funding on this scale, so one of the main options the government is considering is raising the standard VAT rate by one percentage point — from 20% to 21%.
The minister described this mechanism as, in effect, the quickest way to mobilise the necessary resources.
Translated from bureaucratic jargon, the scheme is quite simple: Russia runs the company into the ground, the state insures the business, and part of the money for this is collected when Ukrainians go to the shops, fill up their cars or buy services.
After all, VAT — is an indirect tax that is built into the price of goods and services. Technically, it is paid by businesses, but the actual burden falls largely on the end consumer.
An increase in the rate to 21% does not mean that all prices will automatically rise by exactly 1%, but it does create additional price pressure on goods and services taxed at the standard rate.
Businesses should also pay for insurance
The scheme does not provide for businesses to receive compensation entirely free of charge.
According to Kravchenko, the insurance premium will amount to approximately 2% of the sum insured. The fund is to cover the so-called first loss — the company’s first losses following the attack. The maximum compensation under consideration is up to $10 million.
For example, if a large factory or warehouse is destroyed by a Russian strike, the state does not promise to compensate for its full value. The idea is to provide the business with funds quickly so that it can restore critical equipment, retain its workforce and restart production.
Following this, private insurance companies may potentially be brought in to cover the remaining risks.
According to estimates by the Ministry of Economy, this year alone, losses of Ukrainian business assets due to Russian attacks could reach $10 billion.
They want to receive part of the funding from international partners
The government does not plan to finance the entire fund solely through VAT.
Kyiv is in talks with international partners and expects them to fund a significant part of the programme. The Ministry of Economy hopes that Ukraine’s willingness to contribute its own funds will help attract co-financing from donors.
If funding sources can be found, the new scheme could be launched from 2027.
The idea seems straightforward: businesses do indeed regularly are losing their warehouses, factories, machinery and equipment due to attacks by the Russian Federation, whilst comprehensive commercial insurance against war risks is either very expensive or completely unavailable.
The only question is why, when it comes to solving yet another major problem, the most reliable source of money once again turns out to be the receipt from an ordinary Ukrainian’s shopping trip.
The business community is already wondering where the extra money will go
It is interesting to note that even business representatives do not show unanimous support for the idea.
Some of the major business associations fear that the additional revenue collected through VAT may ultimately not to go straight to insurance compensation. There are also concerns that the temporary tax increase could become permanent.
One possible compromise would be to raise VAT only for one year. The First Deputy Chair of the parliamentary Committee on Finance spoke about this option Yaroslav Zheleznyak.
In other words, even the «bear with it for a year» plan is still only at the discussion stage.
Until recently, the government had promised not to raise base rates
The current debate seems particularly ironic in the light of the statements made by the Ministry of Finance at the end of 2025.
At the time, the ministry officially emphasised that the government «has no plans to increase the standard tax rates», whilst it intends to generate its main revenue through the formalisation of the economy, better administration and the broadening of the tax base.
Less than a year has passed — and the increase in one of the main taxes is already being described as one of the most realistic, and in fact one of the quickest, ways to raise money.
However, the Ministry of Economy stresses that this is only for the time being proposal, rather than an approved amendment to tax legislation. A transition to the 21% rate requires decisions by the government and the Verkhovna Rada.
So, for the time being, Ukrainians do not need to worry about new prices in shops. But the direction of the debate is already clear: when the budget needs billions more, the government’s attention turns once again to VAT — a tax that is practically impossible to avoid paying.
