IMF Mission Starts Talks With Ukraine as Unpopular Tax Hikes for Entrepreneurs Loom

IMF Begins Talks with Ukraine Amid Looming Tax Increases for Entrepreneurs

IMF Mission and Ukraine's Economic Challenges

By Olena Harmash

KYIV, March 18 (Reuters) - An International Monetary Fund mission began talks with Ukraine's government on Wednesday as the country faces an uphill battle to pass unpopular tax increases for small businesses and entrepreneurs to secure financing, officials said.

Funding from the IMF, one of Ukraine's biggest international lenders, is key to macroeconomic and financial stability in the war-battered country.

Focus of IMF Discussions

"The discussions will cover macroeconomic policies and key structural reforms," Priscilla Toffano, the IMF's representative in Ukraine, said in a statement.

Last month, the Fund disbursed $1.5 billion under its new $8.1 billion lending programme to Ukraine, but future tranches depend on the government's ability to meet funding conditions.

Ukraine's Budget Deficit and Financing Needs

With the war with Russia now in its fifth year, Ukraine is grappling with a ballooning budget deficit. Ukraine would need between $45 billion and $52 billion in external financing this year to cover the gap, the government and economists said.

Raising Taxes and Reducing the Shadow Economy

Proposed Tax Increases for Entrepreneurs

Lawmakers and economists said the talks were expected to focus on increasing taxes for entrepreneurs and small businesses, reducing the shadow economy, and creating a level playing field for businesses.

"No IMF programme – no money," said Sergiy Fursa, a deputy director at Dragon Capital investment house, in a post on Facebook.

"That’s why voting for these changes is beneficial, not only for the country’s survival during the war. Because money is needed precisely for survival but also for a more effective economy."

Legislative Changes and Impact

Ukraine's parliament needs to pass a package of legislative changes hiking taxes for individual entrepreneurs and small businesses by the end of March. Government officials estimate that the amendments will affect about 250,000 entrepreneurs.

Ukrainian digital platforms will also have to pay more tax and exemptions for paying value-added tax will be reduced.

Parliament has so far delayed voting on some key reforms and has failed to gather enough votes to increase taxes for digital platforms.

Previous Tax Increases and Ongoing Challenges

Ukraine has raised taxes once since Russia's full-scale invasion on February 24, 2022. In December 2024, it raised tax rates on personal incomes and also for businesses and banks.

But with combat raging along more than 1,200 km (746 miles) of the frontline, this has not proved sufficient as Ukraine is fighting a much bigger and better-equipped enemy.

Dependence on Foreign Aid

The government spends the bulk of its revenues on defence, and depends on foreign financial aid to pay pensions, public sector wages, and other social spending.

IMF and EU Support

The IMF support is also key to securing funding from the European Union, Ukraine's largest backer. The EU approved a 90 billion euro loan to Ukraine but Hungary's Prime Minister Viktor Orban has so far held it up.

(Reporting by Olena HarmashEditing by Gareth Jones)