Ukraine's PM explains proposed VAT hike as funding for war-risk business insurance

Ukrainian Prime Minister Serhii Koretskyi explained in an interview with the "TSN.Tyzhden" program why the government's 2027 draft budget includes a one-percentage-point increase in value-added tax.

According to Koretskyi, daily Russian strikes on Ukrainian enterprises directly undermine the economy, the budget and the country's overall resilience. For this reason, the Cabinet of Ministers has initiated the creation of a special fund to quickly compensate businesses for losses caused by Russian missiles and drones.

Initial contribution needed

To launch the mechanism, Ukraine must make an initial contribution of roughly $1 billion. Since there are no other sources to cover this cost, the government built the VAT increase into the 2027 budget draft.

Koretskyi acknowledged the decision is unpopular but said there is no alternative source of funding.

A signal to allies

The prime minister said the move is meant to show allies that Ukraine is willing to invest in protecting its own economy. The government hopes international partners will subsequently increase their contribution to four times Ukraine's share.

Koretskyi stressed that a combined fund of $5 billion would allow insurance companies to offer Ukrainian businesses affordable policies without needing to reinsure abroad.

He noted that conventional war-risk insurance currently does not work well because of high costs and lengthy waiting periods for payouts. The new mechanism would let entrepreneurs receive funds immediately after rescuers verify the damage.

Koretskyi had previously also said that cheap VAT-free parcels imported from abroad were harming Ukrainian businesses, with about 80% of such shipments used by dishonest traders who split goods into smaller batches to avoid taxes.