You are one of the largest taxpayers in Ukraine. Yes, that's right, you. Even if you are not engaged in business and are not employed. Whether you pay for utilities, buy groceries at the store, or go to the cinema, you are paying value-added tax (VAT). VAT is sometimes referred to as a consumption tax, as it applies to almost all goods and services in Ukraine. Last year, the state budget received 214.1 billion UAH in VAT revenue.
Let’s take a closer look at what VAT is and whether the rate of this tax will increase along with the military tax rate.
What is VAT
On any receipt – for utilities, groceries, or services – you will see a line indicating 20% VAT included in the total amount you paid. This is an indirect tax, meaning it is added to the price or tariff, rather than deducted from income or wages.
In other words, when you pay 120 UAH at the store, you don’t think about taxes, but you have actually contributed 20 UAH to the budget of Ukraine during that purchase.
You pay, but the seller or service provider transfers the money, and they are the ones reporting the VAT amounts. This means that the store acts as a tax agent. This is why most Ukrainians are unaware that they are contributing some of the largest sums to the state budget.
Additionally, VAT must be paid when you import goods from abroad into Ukraine. However, this does not apply to goods valued at up to 150 euros. During the war, there are also exceptions for certain goods, but more on that later.
It is important to note that VAT is paid not only by Ukrainians but also by foreigners who purchase goods or receive services in Ukraine. So, VAT is truly paid by everyone.
What is the VAT rate
The general VAT rate of 20% is included in the price of most goods and services. Some agricultural products are taxed at a VAT rate of 14%.
Some medical devices, pharmaceuticals, as well as excursion services in museums or film and theater shows are taxed at a rate of 7%.
During the war, VAT is not charged on the import of goods necessary for the military. This includes items such as:
Due to the threat to Ukraine's energy infrastructure from Russian attacks, the government has also allowed the import of certain energy equipment into Ukraine without paying VAT.
How much VAT do Ukrainians pay each year
It is worth mentioning that the report on budget revenues in Ukraine separately specifies VAT on goods produced in Ukraine and VAT on goods imported into the customs territory of Ukraine. For clarity, let’s look at the total amount, as this money is ultimately paid by every Ukrainian.
From 2020 to 2023, the Ukrainian state budget received the following VAT amounts:
Relevant reports on tax revenues can be found on the government website.
VAT revenues almost always hold the largest share in the state budget. This tax can be considered the lifeblood of the country.
If you spend, for example, 20,000 UAH on groceries each month, you contribute 4,000 UAH in VAT to the budget each month. That amounts to 48,000 UAH a year. Add to that various services.
Where does the VAT money go
Before the full-scale invasion of Russia into Ukraine, VAT revenues were primarily spent on social payments, education, and so on.
Now, however, the main priority of the state is financing the Armed Forces of Ukraine. Since donor money cannot be spent on this, our taxes are directed to the army, while social spending comes from international partners' funds.
Will the VAT rate increase above 20%
It is quite possible. There was a proposal to raise the VAT rate in a new law concerning taxation during martial law. Many economists believe this would be fair, as VAT is paid by everyone on a daily basis. However, instead, the parliament decided to increase the military tax rate from 1.5% to 5%.
“Everyone pays VAT: those who work 'in the white', 'in the gray', and 'in the dark'. It is a consumption tax, which is a fairer approach; the more you consume, the more tax you pay. Unfortunately, due to populism, politicians are not ready to go this route. Hence, we see an increase in military tax,” said banking and financial expert Serhiy Fursa in an interview with Radio Liberty.
At the same time, the head of the parliamentary committee on finance, customs, and tax policy, Danilo Hetmantsev, does not rule out the possibility of increasing the VAT rate as well, although for now, according to his statements, there are no reasons for this.