EU and IMF tie Ukraine aid to tax hikes and fiscal reforms

Ukraine’s two main financial backers, the EU and IMF, are tying further aid to tax hikes and fiscal reforms, according to media reports. Kiev, facing mounting battlefield pressure, is increasingly pushing for faster aid disbursements as it relies heavily on foreign funding to plug a widening budget gap and sustain its war effort against Russia.

However, most multi-year support comes with strict conditions. The EU is now considering linking part of its €90 billion ($105 billion) loan package to business tax reforms, Bloomberg reported on Wednesday, citing sources. The bloc formally approved the long-contested, interest-free loan last week after Hungary lifted its veto following the election victory of pro-EU politician Peter Magyar. Brussels has pledged to begin disbursements in the second quarter of 2026.

However, according to the report, around €8.4 billion in macro-financial assistance, roughly 10% of the total due this year, could depend on reforming Ukraine’s preferential tax regime. Under the current Simplified Taxation System, some businesses pay a flat 5% tax on revenue instead of profit – a system donors say drains state revenues and fuels the shadow economy. Brussels is now considering requiring firms under the scheme to pay a 20% value-added tax (VAT) once turnover exceeds 4 million hryvnia (about $91,000).

A European Commission spokesperson told Bloomberg the bloc is "working tirelessly" to finalize the memorandum outlining the funding conditions, but offered no further details or timeline. The IMF, meanwhile, is pushing Kiev to widen its tax base under its current $8.1 billion funding program, Reuters reported. Alongside backing the EU’s push on business taxes, the fund is demanding Ukraine introduce VAT on low-value imported parcels ahead of a key review of aid in June.

Goods worth under €150 are currently exempt, but removing the threshold could raise around 10 billion hryvnia ($227 million) annually, according to the Finance Ministry. A draft law has been submitted to parliament but has yet to be debated due to lack of backing, media reports say. Prime Minister Yulia Sviridenko earlier warned the measures are "not constructive" and "highly sensitive," pointing to growing domestic resistance to further tax hikes.

Analysts warn that failure to pass the required laws could delay the IMF’s June review, jeopardizing not only upcoming tranches from the fund but also related EU support, as both closely coordinate their reform demands for Kiev. Russia has repeatedly warned that continued Western funding will merely prolong the conflict while shifting the burden onto European taxpayers. Russian Security Council Secretary Sergey Shoigu said earlier this month the EU package would further strain "ordinary Europeans," calling the move "another step" toward a loss of sovereignty for European states.