White Book of Reforms 2025. Chapter 5. Public finance

Fiscal policy reforms implemented since 2014 can be divided into several broad interconnected areas. The first area is the extension of the economic policy horizon (introduction of medium-term budget planning) and the de-facto introduction of program budgeting with clearly defined policy goals and monitoring of their achievements (although legally it was introduced more than 20 years ago). 

The second area of reform centers on increasing tax and customs revenues through better administration, less tax exemptions, and fewer opportunities for tax evasion. For this, Ukraine joined global initiatives to combat tax base erosion and profit shifting (BEPS). At the same time, the rates of some taxes were lowered (the largest reduction being in the Unified Social Contribution) and the number of taxes was reduced.

The third area relates to improving efficiency in government expenditures, via public procurement reform (discussed below), decentralization (Chapter 2), healthcare reform (Chapter 14), energy market reform (Chapter 7), social support system reform (Chapter 12), and reform of state-owned enterprises (Chapter 11). Efforts to ensure the efficiency of public spending are facilitated by a significant increase in the transparency of public expenditures, such as by publishing detailed information on the budget and expenditures of public fund managers, introducing spending reviews, and increasing the powers and independence of the Accounting Chamber of Ukraine (ACU). Moreover, since 2014, Ukraine has been improving public debt management: it designated a special official (deputy Finance Minister) responsible for public debt management, and, before the full-scale invasion, gradually replaced foreign currency debt by domestic bonds.

All of these reforms were implemented with significant support from Ukraine’s civil society and international partners (e.g., the long-term project by the European Commission to improve public finance management, a similar project by the World Bank, and support for the development of Prozorro and Prozorro.Sales from a number of donors). 

Despite significant progress, Ukraine still has a lot of ground to cover in the next few years to improve the quality of public financial management, particularly within the framework of the Ukraine Facility plan and IMF program.

Public finances are closely linked to every area of government policy. Therefore, in this Chapter, we focus on the tax system, the budget process, and public procurement. Fiscal decentralization is discussed in detail in Chapter 2, customs reform in Chapter 9. More generally, reforms discussed in all Chapters of this book affect the budget in one or another way.

Reforms in public finance from 2014 to 2019

In 2014, Russia began its military aggression against Ukraine and occupied part of its territory. As a result, Ukraine lost 16% of its GDP in 2014-2015, primarily due to a decline in exports. However, the war and the resulting decrease in production capacity were not the only causes of the economic and budgetary crisis in 2014. Another factor was the economic policy of previous governments, particularly imbalances in the energy sector (due to which the government had to subsidize NJSC Naftogaz, the state-owned gas extraction and distribution company), fixed exchange rate (causing central bank reserves to fall to their lowest point in early 2015), and orientation of the state apparatus towards serving the interests of former president Yanukovych and his inner circle. The critical situation in the economy and public finances forced the government not only to sign a fairly ambitious program with the IMF but to actually implement it. Hence a “spike” of reforms in early 2015 was observed in almost all areas.

In February 2015, Ukraine signed a four-year program with the IMF for a USD 17.5 billion loan (the previous program, signed in April 2014, was only for USD 1.4 billion and did not cover Ukraine’s needs) and began to promptly implement reforms which we discuss below. An urgent measure within the IMF program was fiscal consolidation, which involved cutting unnecessary budget expenditures, including subsidies and privileges, notably energy subsidies for all households in the form of low tariffs (see Chapters 7 and 12). For 2015, the government introduced an additional import duty — 10% on food products, alcoholic and non-alcoholic beverages, and tobacco, and 5% on other goods, excluding energy resources and certain medications (at the same time, Parliament exempted imports of goods necessary to implement state defense orders from taxes and duties). 

Reforms of the Tax System and Tax Administration

At the end of 2014, Parliament passed a “last-minute” tax reform and a law on transfer pricing to reduce tax evasion (this law was later softened to make it applicable in practice). The main features of the tax reform were as follows:

• the number of taxes and fees was cut from 22 to 9, which reduced administrative burden on businesses;
• tax rates for the simplified taxation system were lowered from 3-5% to 2% for VAT payers and from 5-7% to 4% for everyone else, and a two-year moratorium on tax inspections for these businesses was introduced. Later, the rates were increased to their original levels. Today, taxpayers on the simplified system pay either a fixed amount tied to the subsistence minimum, or 3% or 5% of their income plus the Unified Social Contribution (USC) — 22% of at least the minimum wage. For farmers (group 4 of the simplified system), taxes depend on the type of land and crops that they cultivate. At the same time, the vast majority of taxpayers on the simplified system (except for very small vendors operating in local markets or public spaces), had to install equipment for the issuance of receipts in 2016; due to resistance from businesses, this became mandatory later on;
• an experiment reducing the Unified Social Contribution (USC) rate from 41% to 16.4% for businesses that increased wages by 30% and de-shadowed salaries, i.e. stopped paying salaries “in envelopes” (in 2016, the USC rate was set at 22% for everyone). Meanwhile, the social insurance funds for sickness and disability were merged into one, and in 2023, it was merged with the Pension Fund;
• an increase in tax rates on interest, dividends, and royalties for enterprises from 15% to 20% (tax rate for dividends paid by corporate taxpayers remained at 5%); 
• the introduction of a local property tax tied to the minimum wage. Owners of apartments over 60 m² and houses over 120 m² are required to pay this tax. However, local authorities largely failed to establish effective systems for collecting this tax;
• the allocation of a share of excise taxes on tobacco, alcohol, and fuel to local budgets; 
• the introduction of a luxury car tax — UAH 25,000 per year for passenger cars less than 5 years old with engines larger than 3 liters. Later, this tax was replaced by an excise tax, the rate of which depends on the engine size. Additionally, when a car is first registered in Ukraine, one has to pay a fee to the Pension Fund. The rate of the fee is 3% or 5% depending on the price of the car;
• increased taxation of lotteries from 10% of the total prize to 10% of total revenues. 

At the end of 2014, the government implemented a mini-tax amnesty: During the first quarter of 2015, taxpayers were allowed to “adjust” their corporate profit tax and VAT obligations accrued before April 1st, 2014, and pay to the state 5% of the “adjusted” sum.

In the next few years, the government made several more “Christmas” changes to the tax system, i.e., simultaneously approving the budget for the upcoming year and the law on tax changes that would increase budget revenues. Although the Budget Code states that tax changes must be approved at least six months before they enter into force, bundling the budget law with tax law allowed for the adoption of necessary changes without lengthy political discussions. 

In 2015, the government started the transition from manual VAT refunds (which was one of the main sources of corruption) to automatic refunds through an electronic system called SMKOR; generally, the government streamlined the administration of this tax. In early 2016, the government created two registries for collecting VAT refund applications — one for companies whose exports exceed 40% of their annual turnover, and another for other companies. In early 2017, these registries were merged into one, and automatic VAT refunds finally began to function. 

Tax administration can block the electronic VAT invoices based on risk criteria (if tax inspectors suspect that a certain operation is fictitious or used for tax evasion). However, at the end of 2022, there was a massive blocking of invoices in the system, which adversely affected businesses. Some businesses reported that tax officials proposed to “solve” their problem in exchange for a bribe, while the taxation service pointed to an increase in the share of suspicious operations as the reason for this issue. The problem was mitigated by adjusting the rules for blocking VAT invoices.

In 2015, other anti-corruption changes to the tax system were implemented. The Ministry of Finance canceled a scheme involving overpayment of profit tax introduced by Yanukovych’s government. It consolidated the accounts on which enterprises transferred advance and “post-factum” tax payments, thus allowing these amounts to be offset. That same year, the government simplified the registration process for foreign companies, introduced a flat income tax rate (18% instead of 15% and 20%), increased excise taxes on tobacco, alcohol, and fuel, and began phasing out VAT exemptions for agricultural enterprises (see next section).

At the same time, the government reduced taxation for charitable and religious organizations. In 2015, the government canceled the profit tax for non-profit organizations (budgetary institutions, NGOs, political parties, creative unions, charitable organizations, etc.). In 2016, humanitarian aid provided by these organizations was exempted from taxation as well. In 2017, religious organizations were exempted from property tax (except for land), which was a negative change since such organizations are fully capable of paying the taxes in question.

In May 2016, the government effectively abandoned the long-standing system of supporting domestic car manufacturers through high taxes on imported used cars (despite receiving billions of hryvnias in direct and indirect support since the early 2000s, the Ukrainian automotive industry never developed). The government reduced the excise tax on used cars by 10-20 times if a person is importing a car for personal use (i.e., no more than one per year). However, other taxes on imported cars (VAT, customs duty, Pension Fund contribution, transport tax) remained, which eventually led to the import of many cars with European licence plates. Since it was possible to use a “European” car in Ukraine for a year, owners of used cars purchased in the EU would periodically exit and re-enter the country, registering their cars as transit. At the end of 2018, Parliament significantly reduced the excise tax on cars once again, eased environmental restrictions, and simultaneously increased penalties for those who did not register their cars in Ukraine within the prescribed time.

At the end of 2016, Parliament introduced an electronic taxpayer cabinet thus enabling online tax payments. At the same time, the government tried to partially recover USC payments which in 2016 fell by 30% due to the lower USC rate. For this, it increased the minimum wage from UAH 1600 to UAH 3200 (since the USC payment per worker could not be lower than 22% of the minimum wage) and obliged even “idle” individual entrepreneurs (i.e., those without any business activity) to pay the USC.

In 2017, to prevent evasion of the excise tax on fuel, the government introduced an electronic reporting system: fuel producers and distributors were obliged to use special software to provide information about their fuel stocks to the Unified State Register of Meters and Counters administered by the State Fiscal Service.

That same year, Ukraine joined the BEPS (Base Erosion and Profit Shifting) Action Plan developed by the OECD, and in 2019, it ratified the BEPS convention. However, the necessary changes to the Tax Code were only made by the next Parliament in 2020.

At the end of 2017, Parliament started increasing excise tax rates on tobacco products in line with Ukraine’s commitments to the EU and allowed imports of electric vehicles without VAT payment for five years (i.e., until the end of 2022. Later, this exemption was extended until the end of 2025).

At the end of 2018, the government raised the environmental tax rates but also introduced negative changes, including the reinforcement of the “Yatsenko marketplaces” scheme (individuals could not buy or sell real estate without first obtaining price estimates from these marketplaces; this scheme was scrapped by the next Parliament in December 2019) and the expansion of the state support program for farmers to purchase railway cars for grain transportation.

Tax privileges and subsidies

Traditionally, the agricultural sector received the most tax exemptions and subsidies: in 2014, tax exemptions for agricultural producers amounted to about UAH 20 billion (nearly 1.3% of GDP). The largest share of those were VAT exemptions — the sums that agricultural enterprises should have paid to the budget as VAT were accumulated in special accounts and could be used by agricultural enterprises for their development. Such support was both opaque and ineffective. A more beneficial approach to supporting the agricultural sector was opening the land market (which simplified access to credit for farmers — see Chapter 10), support for innovation, R&D, and education in this field, and protection of property rights for land and intellectual property (such as local trademarks).

The cancellation of VAT privileges proceeded in stages. In 2016, grain and technical crop producers started transferring 85% of their VAT obligations to the budget; milk and meat producers transferred 20%, and others transferred 50%. By 2017, VAT exemptions were replaced with direct subsidies. This sparked a heated public debate, as it became evident that the largest producers (the so-called agro-oligarchs) received the largest subsidies. Large producers had also been the primary beneficiaries of previous tax privileges, albeit the sums of those privileges were hidden from the public. 

Afterwards, the government made several adjustments to farmer support programs. For instance, in 2017, it started to partially compensate farmers for the cost of agricultural machinery produced in Ukraine. In 2018, small farms were allowed to register as 4th group of individual entrepreneurs and receive compensation for their USC from the state (group 4 of the simplified taxation system refers to farming enterprises that own between 2 to 20 hectares of land or water objects and farm agricultural products or fish. They pay taxes as a certain percentage of the normative land value). During the pandemic, farmers became the primary beneficiaries of the subsidized loan program “5-7-9%.”

The agricultural sector is not the only industry benefiting from tax exemptions and privileges. For instance, in 2016, the government decided to support aircraft production by exempting imported goods used for aircraft construction from VAT and canceling the VAT exemption for imports of aircraft such as those brought to Ukraine under lease agreements. The most promising development was the launch of serial production of the Antonov An-178 transport aircraft. Although contracts were signed for about 100 units, production of this aircraft never started.

Overall budget losses from various tax benefits were almost halved during 2015-2016, from UAH 55.35 billion to UAH 30.26 billion. However, starting in 2018, these losses began to increase again. 

The government attempted to streamline public support for enterprises and public investment management. In 2015, it introduced Public Investment Projects to the Budget Code and specified their competitive selection. In 2017, it provided more details on selection, financing, and state support for investment projects, and obliged the Ministry of Economy to compile a registry of these projects and estimate their economic effect. In 2018, the government specified the list of services of general economic interest, allowing producers of these services to qualify for state support. However, the system of public support for businesses remains quite complicated. For example, it is difficult to understand why a given firm received public funds as state support rather than via government procurement of its goods or services.

Additionally, the government changed conditions and privileges for firms that operate in industrial parks a few times (see details in Chapter 6).

Reforming the Tax Service

The tax and customs services were merged into a single entity in 2012 (in 2013-2014, this entity even had the status of a ministry). After 2019, they were divided again.

In 2014-2015, the Cabinet of Ministers reduced the number of tax inspection offices from 311 to 161 and dismissed many tax officials under the law on lustration. Since 2021, the Tax Service has operated as a single legal entity, rather than as a union of several legal entities in order to improve its management and reduce corruption. However, problems with the administration of taxes and customs duties remain on the agenda. According to the business ombudsman, the majority of complaints are about the actions of tax authorities. One of the reasons for that is that compared to other countries, tax administration in Ukraine is quite complex and time-consuming.

Customs reform is described in Chapter 9 on international trade.

Budget planning

Before 2014, budget planning faced significant challenges. The budget was often approved well outside the deadlines set by the Budget Code. Throughout the year, Parliament used to introduce numerous amendments to the budget, and the government had to find additional funds to implement them. Moreover, although program-based budgeting was formally introduced in the early 2000s, in practice, the goals of many budget programs were neither measurable nor clearly defined. Thus, many programs were financed “by inertia” without consideration of their social effect.

Gradually, Parliament and the government began addressing these issues. Since 2015, Parliament has been allowed to suggest changes to the budget that alter its key parameters (revenues, expenditures, and deficit) only with the approval of the Ministry of Finance and the Budget Committee of the Verkhovna Rada. 

In 2017, medium-term budget planning was introduced, but Parliament did not approve the three-year budget declarations that the government developed in 2017 and 2018. In December 2018, the parameters of the budget declaration (a three-year document containing the main budget parameters and fiscal policy objectives) were clarified, and fiscal rules were introduced — limits on the budget deficit at 3% of GDP, and limits on state guarantees at 3% of general fund revenues (previously, governments had abused this practice: they issued public guarantees, and when enterprises did not repay loans, the state would cover the debt). The limit on the amount of state debt at 60% of GDP was introduced earlier.

In 2019, due to successful debt management policies (see section on public debt management below), Ukraine’s state debt decreased to 50% of GDP. However, during the pandemic and the full-scale invasion, both the budget deficit and debt limits were exceeded, and the Parliament had to pass separate laws to allow this (see Figure 5.2). The first budget declaration was approved in 2021 (for 2022-2024), and the next one was adopted in 2024. Thus, despite significant uncertainty, Ukraine returned to medium-term budget planning.

In 2018-2019, the Ministry of Finance launched the first comprehensive assessment of fiscal risks. Identifying fiscal risks helps to anticipate potential shortfalls in planned revenues or exceeding expenditures due to unpredictable or weakly predictable factors, such as poor harvests, global economic crises, changes in the policies of Ukraine’s trade partners, etc., and to plan measures to mitigate the impact of these risks if they materialize.

Oversight of public funds

Since 2015, the government has significantly increased the transparency of public funds use: they created the eData portal, which provides information on transactions of public entities with just a one-day delay, obliged entities that spend public funds to publish information in open data formats, and later launched a citizen budget portal, where data about revenues and expenditures of various budgets can be viewed in a user-friendly format. As a result, Ukraine scored 54 points in the Budget Transparency Index in 2017, compared to 46 in 2015.

In August 2015, the Verkhovna Rada introduced a ranked voting system for selecting Accounting Chamber (ACU) members and tasked the Chamber with auditing not only public expenditures but also revenues, public procurement, implementation of public investment programs, and use of foreign loans. However, the main issue — the lack of a mechanism to ensure that government agencies implement ACU recommendations — was not resolved by this law.

In February 2018, the government introduced spending reviews as an instrument of budget funds management that assesses the efficiency and effectiveness of expenditures. However, the practical implementation of this tool is rather slow. For example, in 2019, five public agencies were supposed to implement spending reviews, in 2020 — eleven, in 2021 — twelve, in 2023 — seven (while the Ministry of Energy was supposed to complete a review that started in 2019), and in 2024 — fifteen. We were able to find 18 completed spending reviews on the websites of various government agencies. In 2020, the Ministry of Economy approved the methodology for assessing the effectiveness of budget programs, which is to become a part of the spending reviews.

Public debt management

In 2015, Ukraine implemented a crucial and generally successful restructuring of its public debt. This restructuring involved a 20% haircut and replacement of “regular” government bonds with GDP warrants, on which the interest rate depends on GDP growth. 

To improve public debt management, in 2015 the government designated an official (the Deputy Minister of Finance) responsible for public debt management. In 2019, it created the debt management agency (which is still not operational). In 2019, Ukraine joined the Clearstream system, which made it easier for foreigners to access Ukrainian government bonds.

Overall, the public finance reforms implemented during 2014-2019, together with budget discipline, allowed the government to finally implement countercyclical fiscal policy during the next crisis — the 2020 pandemic. The government was able to increase public spending to support the economy at the cost of higher public debt.

Fiscal policy in 2019-2024

The new government and Parliament elected in 2019 continued the reforms started in 2014, including changes in tax administration (mainly digitization), the introduction of some new taxes, and changes in tax rates. They also introduced several tax privileges (for farmers, charities, residents of Diia.City) and a subsidized loan program for businesses called “5-7-9%.” 

The new government implemented a more extensive tax amnesty, which lasted from September 2021 to March 2023. The idea was that people who declare previously undeclared assets (real estate, cash, precious metals, etc.) would be able to pay a tax of 5% or 9%, or 2.5% if they invest in government bonds. However, amnesty results were rather modest. The government expected that Ukrainians would declare USD 20 billion worth of assets and pay about USD 1 billion in taxes for them but in reality, they declared UAH 8,8 billion worth of assets (about USD 250 million), on which they paid UAH 547 million in taxes (about USD 16 million). This is not surprising given that conditions for a successful amnesty were not in place — the people did not trust that the “rules of the game” had changed for good.

Changes in tax administration

On the one hand, the government has simplified tax administration and on the other hand it implemented measures to reduce tax evasion. For example, in 2019, the government consolidated reporting for personal income tax (PIT) and the Unified Social Contribution, allowing taxpayers to use a single account for tax payments (excluding VAT and excise) and the USC. At the same time, the government continued to implement the BEPS plan — introducing taxation of controlled foreign companies (CFCs) and expanding the list of payments considered dividends (and thus subject to taxation). At the end of 2022, Parliament stated that if the effective management of a foreign company is located in Ukraine, such companies must register as profit tax payers. Taxpayers were given the opportunity to request individual consultations from the tax authority by e-mail and to extend the deadline for appealing tax authority decisions for valid reasons. 

At the same time, the government used a “carrot and stick” method to promote wider use of cash registers. It allowed the use of software-based cash registers and electronic receipts while at the same time increasing fines for failing to issue receipts and introducing cashback policies for customers who reported non-compliance by sellers. At the end of 2021, the government exempted entrepreneurs operating in rural areas from the mandatory use of cash registers due to unstable internet/mobile connection. These measures were effective: according to OpenDatabot, a startup that collects and aggregates open data produced by government agencies, between January 2021 and March 2024, the total number of cash registers in Ukraine increased by 2.5 times. The number of “traditional” registers slightly declined (from 298,000 to 273,000), while the number of software-based registers increased significantly (from 59,000 to 604,000).

For a long time, the most “shadowed” sectors were the production and circulation of alcohol and fuel. To de-shadow these sectors, at the end of 2019, the government somewhat simplified the administration of excise duties on alcohol and fuel: it extended the deadline for submitting an excise invoice from 2 to 15 days, allowed for the correction of excise invoices, and clarified their template. Soon afterwards, information on stocks of fuel and ethyl alcohol was transferred to electronic format. This allowed tax authorities to automatically check the stock data, and taxpayers could see the results in their electronic cabinets.

In June 2023, Parliament took another step towards de-shadowing: it introduced e-Excise for alcohol and tobacco — an electronic excise stamp system that can track the entire supply chain of these products. In October 2024, the Cabinet of Ministers approved the procedure for calculating the excise payable on produced or imported goods in line with EU regulations. This allows the state to monitor whether all taxes are paid, and consumers will be able to verify the authenticity of products through the Diia app. As of December 2024, this system has not yet been implemented, but allegedly the size of the shadow market for alcohol and tobacco has somewhat decreased. From April 2025 until January 2030, Ukrainian alcohol producers (except for those producing exclusively bioethanol) will pay excise taxes based on their maximum production capacity, so that producers cannot evade excise tax by underreporting their output.

Tax privileges

During the COVID-19 pandemic, the government provided some tax relief for entrepreneurs by exempting individual proprietors from paying the Unified Social Contribution for months when they had no income, effectively canceling the requirement introduced in 2016. The most significant change, however, was the simplification of closing a sole proprietorship. Entrepreneurs were allowed to write off tax debts if they had ceased operations since 2017 but had not officially closed their business due to the complexity of the procedure. These measures provided significant relief for individual entrepreneurs affected by the pandemic. In addition, the government introduced temporary tax discounts on income, real estate, and land taxes, and increased unemployment benefits.

In 2021, the government reduced VAT rates for certain types of agricultural products (according to the government, this was done to combat VAT “optimization,” though experts from the Reform Index assessed this change negatively as it introduces unequal rules for different producers).

In the same year, Parliament passed the so-called “Investor Nanny” law, which introduces tax benefits for large investment projects (over EUR 20 million). The government can provide businesses implementing such projects with exemptions from customs duties and profit tax, as well as offer land plots and provide infrastructure for these projects. However, the first contracts under this law were signed only in October 2024.

In September 2021, Parliament passed the law on the digital economy, which created a special tax regime, Diia.City, and introduced tax privileges for its residents. Companies operating there can choose to pay either the standard 18% profit tax or a 9% distributed capital tax. Additionally, the personal income tax rate is 5% (instead of 18%, as under the general system), and the Unified Social Contribution is 22% of the minimum wage (rather than the actual wage, as under the general system). To become a Diia.City resident, a company must pay employees or GIG specialists an average salary of at least EUR 1200 per month, employ at least 9 workers (excluding individual entrepreneurs), have been operating for at least 2 years, and have an annual revenue of at least 1167 minimum wages (in 2024, UAH 933.6 million).

This law is rather controversial, as it effectively legalizes reduced taxation for highly paid IT specialists. At the beginning of 2025, there were over 1,500 companies in Diia City with nearly 100,000 employees.

Just before the full-scale invasion, the government decided to support science in Ukraine by exempting the import of equipment for scientific institutions from customs duties and VAT.

After the start of the full-scale invasion, in March 2022, the government introduced significant tax relief for a wide range of businesses — even those that did not require such support, like the gambling industry. In particular, all businesses were allowed to switch to a simplified tax system and pay 2% of their turnover instead of the profit tax. This had a negative impact on budget revenues, so over time, the government began to return to the “regular” tax system.

To encourage charitable activities (including support of the Armed Forces), Parliament created a tax exemption for money donated to charities or volunteers. It also exempted the expenses of non-profit organizations related to volunteer travel, medical treatment, and humanitarian aid provided by charities.

Subsidies

In January 2020, the government introduced the “5-7-9%” program — subsidized loans for micro and small businesses (5% for businesses with annual revenues up to UAH 25 million that create at least two jobs within three months of receiving the loan; 7% for companies with revenues up to UAH 25 million; and 9% for enterprises with revenues up to UAH 50 million). Additionally, the government could provide partial loan guarantees to micro and small businesses. However, this program almost never functioned as intended. During the pandemic, it was quickly expanded to include medium-sized enterprises (some even received loans at 0%), and during the full-scale invasion, nearly all enterprises could get subsidized loans. This program helped many small and medium businesses survive during the pandemic and full-scale invasion. However, funds for this program ran out fairly quickly, and now the government, with the support of international partners, is restoring it to its original parameters.

In 2020, the government created the Agrarian Register, which effectively became operational in 2024. Through this register, farmers can apply for state support. In 2021, Parliament introduced partial loan guarantees for small and medium-sized farmers, subsidized insurance for agricultural businesses, and after the start of the full-scale invasion, exempted farmers from paying taxes on mined, occupied, or contaminated lands (a logical step, as they cannot use these lands).

Moreover, the government introduced a subsidized mortgage program at 7%, administered by the Entrepreneurship Development Fund, like the “5-7-9%” program. After the full-scale invasion, this program under the name eOselya was transferred to the state-owned enterprise “Ukrfinzhytlo.” Before the full-scale invasion, few people used subsidized mortgages, but afterward, nearly all newly issued mortgages have been subsidized. As of early 2025, over 15,000 mortgages were issued within the eOselya program totaling nearly UAH 25 billion. 

In the spring of 2023, Parliament launched the eRecovery program, which provides compensation for destroyed or damaged property: citizens can receive compensation for the renovation of a damaged house or a certificate to purchase new property. The government hopes that the funds spent on this program will be reimbursed either through international donors or through reparations. At the moment, compensation is provided only from donor funds and the state budget. According to official information, from May 2023 to October 2024, tens of thousands of people received compensation for renovations or new housing totaling nearly UAH 16 billion.

Introducing new taxes or raising the rates of existing ones

In June 2021, Parliament introduced the so-called “Google tax,” which imposes VAT on non-resident companies providing electronic services in Ukraine (excluding remote learning). If an electronic services provider earns more than UAH 1 million annually, they are required to register as a VAT payer and pay the respective tax. In 2023, Ukraine received nearly USD 110 million from this tax, and in the first half of 2024, it amounted to USD 70 million.

In December 2021, as part of the “budget package,” several taxes were increased: the excise tax on tobacco products, rent payments for extracting natural resources, the environmental tax, and a minimum tax liability was introduced for landowners (excluding garden plots, private household plots, and land in occupied territories or on the front line).

However, the most significant tax increases were introduced at the end of 2024: during martial law, the military surcharge was raised from 1.5% to 5% of salary (excluding military personnel), while individual entrepreneurs will pay the military surcharge either as a lump sum or as 1% of their income. In addition, banks will continue to pay profit tax at a 50% rate, as they did in 2024, and for financial companies (excluding insurance companies), the rate was raised to 25% (the standard profit tax rate is 18%). For fuel sellers and currency exchanges, advance payments were introduced, and rent rates for the extraction of certain minerals were increased. This tax hike is necessary to finance defense efforts. In 2025, due to this law, the budget is expected to receive an additional UAH 140 billion, which is 2.5 times less than under the original version of the law.

The “Big Construction”

The Road Fund was re-established in the budget in 2016. It is a separate fund within the special budget fund. Its revenues are excise taxes on fuel and vehicles, custom duties on imported fuel, cars, and tires, fees for the use of roads by heavy vehicles, and fines for exceeding weight limits. This fund finances the construction and repair of roads, as well as the repayment of loans taken out for road construction. Thus, the Road Fund is an instrument by which road users finance the construction and repair of roads.

“Big Construction” (primarily road construction) became a true “mega-project” of President Zelenskyy and his party. To make it possible, at the end of 2019, the Verkhovna Rada introduced medium-term budget planning for road construction and canceled the requirement to obtain approval from the parliamentary Budget Committee for the list of road construction projects (meaning the Cabinet of Ministers can compile the list of these projects without parliamentary approval). It also introduced subsidies to local budgets for inspections and technical supervision of roads. Shortly thereafter, it allowed the use of state budget funds to repay local budget debts for road construction (such decisions typically have a negative impact on fiscal discipline).

In total, the government spent UAH 252 billion (USD 9.3 billion) on the “Big Construction” project in 2020-2021. At the same time, journalistic investigations revealed that companies close to the authorities were awarded contracts and that prices for construction were inflated. Since 2022, money from the Road Fund has been redirected to defense, and only essential road repairs are performed (for example, UAH 19 billion are planned for this in 2025). To make it more difficult to inflate prices, in 2024, Parliament mandated that organizers of construction tenders publish the prices for materials specified in contracts on the Prozorro platform within three working days of the contract signing or any amendments to it. When constructing military fortifications, organizers will publish brief reports, without information that could jeopardize the safety of the buyer, contractor, or fortifications themselves.

In 2024, the state enterprise “Energoatom” launched a new “mega-project” — the construction of two reactors at the Khmelnytskyi Nuclear Power Plant. Despite experts’ suggestions that Ukraine does not need outdated Russian reactors (which would be launched in 10 years at the earliest) and the European Union’s refusal to fund this project, in February 2025, Parliament passed the relevant law.

Recent developments in budget planning and oversight of public funds

In 2023-2024, despite the huge uncertainty caused by the war, the government resumed medium-term budget planning: in 2024, the government and Parliament approved the budget declaration for 2025-2027. Additionally, the Ministry of Finance updated the public debt management strategy and restored the practice of pre-approval for changes to the budget (except for military expenditures during the martial law).

A significant change was the restoration of medium-term planning for local budgets. This law also created opportunities for local authorities to refinance previous debts and attract new loans with the Ministry of Finance’s approval. Local authorities will be able to approve their budgets with a deficit or surplus in the general fund if they buy government bonds with a maturity of more than one year, and the State Treasury will report monthly on the status of local debts and local guarantees provided. Additionally, local authorities gained the right to procure equipment for military units (previously, they did this either through subsidies to military units or semi-legally). Moreover, remaining funds at the end of the year can be used in the following year for any purpose (previously, there was a list of pre-approved purposes for such funds).

At the end of 2024, the State Audit Service (SAS) began to interact with the European Anti-Fraud Office (OLAF) to coordinate the fight against fraud. Among other things, the SAS will facilitate OLAF inspections on the ground, manage the development of a National Strategy for the protection of EU financial interests, and develop proposals for regulatory acts to support the implementation of this strategy.

In December 2024, the Verkhovna Rada, after a year of delay, finally passed a law to strengthen the powers of the Accounting Chamber. At the beginning of 2024, despite the request from G7 ambassadors to first adopt a new law on the Accounting Chamber and then appoint its members, the Verkhovna Rada appointed members of the Accounting Chamber loyal to the president and his party.

The new law brings the legal framework for the Accounting Chamber activities closer to the standards of the International Organization of Supreme Audit Institutions (INTOSAI). As a result, the Accounting Chamber will use the system of professional INTOSAI documents as a methodological basis for auditing government agencies. It will audit not only the state budget but also local budgets, as well as the finances of state and municipal enterprises, and the spending of funds received from foreign governments and international organizations. The independence of the Accounting Chamber has been strengthened (in particular, the Chamber’s budget proposals must be taken into account by the Ministry of Finance and Parliament which approve budgets of public agencies). The head and members of the Chamber will be selected by an advisory group with the participation of international experts, and, if there are no unjustified delays, the selection process should be completed by the end of 2025. This law also grants the Chamber the right to submit proposals to Parliament regarding measures to resolve non-compliance with the Chamber’s recommendations. However, it does not resolve the issue of overlapping functions between the SAS and the Accounting Chamber.

Reform of the public procurement system

This reform has been one of the most successful, with the Prozorro electronic procurement system receiving numerous international awards. Before the introduction of Prozorro, the state primarily purchased goods and services from “insiders,” making public procurement one of the largest sources of corruption rents (the volume of public procurement before 2014 was estimated at approximately UAH 250 billion, with around one-fifth lost to corrupt schemes).

Opening access to procurement for everyone not only saved taxpayers tens of billions of hryvnias but also provided entrepreneurs, especially small and medium-sized businesses, with a solvent customer, creating opportunities for their growth and development. 

Of course, not everything works perfectly: tender participants can find ways to disrupt tenders or collude, and the cheapest product does not always offer the best quality. However, thanks to open data, flaws in the system cannot be swept under the rug. As a result, improvements to the procurement system continue, largely driven by civil society.

Shortly after the introduction of the Prozorro electronic procurement system, Ukraine introduced Prozorro.Sales — an electronic system for selling or leasing state or municipal property. This system significantly accelerated small-scale privatization (see Chapter 11). 

Reforms in 2014-2019

The first step toward transparency in public procurement was an order by the Infrastructure Minister in early 2015 requiring transportation enterprises to broadcast their tenders online. At the same time, the Ministry disclosed the procurement information of all subordinate enterprises.

In March 2015, the government introduced the sale of seized property through electronic auctions via the SETAM system. At the same time, the development of the Prozorro.Sales system began. The first auctions in the latter system took place in November 2016. In February 2017, the system started selling assets from resolved banks, and since the summer of 2017, it has also been used to sell seized assets.

In May 2015, the Ministry of Economy conducted an experiment with electronic procurement, and by September of the same year, public procurement via an electronic platform was mandated by the law (this law received the highest score in Reform Index history — 8.5 points). The law required that participants in tenders engage in auctions via electronic platforms, and the results of such auctions would be made available to both the participants and the public. In February 2016, electronic procurement was made mandatory — starting from April 1 for central government authorities, and from August 1 for all state and municipal authorities and entities.

As with any reform, practical implementation revealed issues with the procurement system. For example, unsuccessful bidders could file complaints and block tender results. Some entities split procurement lots to keep them below the thresholds where Prozorro use was mandatory (UAH 200,000 for the procurement of goods and UAH 1.5 million for public works). Over time, these loopholes were addressed. 

In May 2015, the government partially transferred responsibility for the procurement of medicines from the Ministry of Health (where it had been handled very inefficiently) to international organizations, with these procurements exempted from customs duties and VAT. By 2016, international organizations were managing the procurement of all medicines for state-level programs, while medical institutions began purchasing medications through Prozorro. After establishing the specialized public enterprise “Medical Procurement of Ukraine” in 2020, the procurement of medicines for state programs gradually transitioned to this organization.

In March 2016, Ukraine joined the WTO Agreement on Government Procurement. This allowed Ukrainian companies to participate in public procurement in the 44 member countries of the agreement, including the EU, the USA, Japan, Canada, Hong Kong, China, Singapore, and South Korea. In April 2023, Ukraine signed an agreement on mutual access to the public procurement markets of Ukraine and the EU (however, the goods should comply with technical standards and some countries exclude certain goods from the public procurement system).

The Ministry of Defense was among the first users of the Prozorro system, but its procurement procedures were adjusted to account for the need to preserve state secrecy. In 2020, the law on defense procurement was amended again, which, according to experts, reduced the transparency of such procurements. However, the most significant changes in military procurement occurred after the start of the full-scale invasion, as detailed below.

In 2017, buyers of energy service contracts were required to conduct these purchases via Prozorro. 

In December 2017, Parliament expanded the powers of the State Audit Service (SAS) to monitor procurement. Previously, the SAS could only review a limited number of completed tenders, but after these changes, it gained the power to audit tenders at any stage using a system of risk indicators to flag tenders with potential signs of collusion. Today, a new version of the law aligned with EU legislation is under development.

2019-2024

In the fall of 2019, Parliament passed a new law on public procurement, incorporating procurement practices established since 2016. The law lowered the procurement threshold from UAH 200,000 to UAH 50,000 and required all contracts to be published in the Prozorro system (previously, this was mandatory only for contracts worth UAH 50,000 or more). Entrepreneurs were given the opportunity to correct minor errors in their documents within 24 hours after winning a tender. Previously, such errors could result in the cancellation of the tender, leading to delays and the loss of potentially profitable contracts.

The 2016 law intentionally defined price as the sole criterion for awarding contracts to combat widespread corruption. However, the 2019 law, recognizing the professional development of procurement specialists, allowed for non-price criteria to be considered and introduced the concept of the life cycle cost (i.e., the price of the product plus its maintenance and disposal costs). 

Additionally, the law and the corresponding Cabinet of Ministers resolution introduced a differentiated fee for appealing tenders, which helped reduce the number of unjustified appeals. Finally, in 2021, a separate 10-person committee within the Anti-Monopoly Committee of Ukraine (AMCU) was established to handle procurement complaints. This change aimed to prevent so-called “tender trolling,” whereas procurement processes were unjustifiably delayed or disrupted by appeals.

In the fall of 2019, the Centralized Procurement Organization began operations. Its responsibilities include procurement for government entities under framework agreements of standardized goods, such as fuel, office equipment and supplies, hygiene products, electric appliances, and other goods that do not require specialized expertise. 

A year later, Prozorro.Market was launched, enabling the procurement of standardized goods via catalogs. The platform is managed by three centralized procurement organizations: the State Institution (SI) “Professional Procurement” fills the catalog with commonly used goods, SI “Medical Procurement of Ukraine” — with medicines and medical products, and the State Enterprise “Ukrainian Special Systems” is responsible for computer equipment and software. The Prozorro.Market catalog contains about 90,000 products from 3,000 qualified suppliers.

Initially, the catalogs were used for sub-threshold purchases, but from 2022 they can be used for all types of procurement. These purchases are much faster than traditional tenders. Research shows that procurement via catalogs is more competitive than tenders, with more participants and greater savings. Unsurprisingly, by 2023, around 40% of procuring entities were using Prozorro.Market. In July 2023, the Cabinet of Ministers specified a single instrument for all market participants: requesting proposals (buyers on Prozorro.Market must issue a request specifying the desired characteristics of goods or services, and suppliers submit their price offers. For procurements over UAH 500,000, at least two price offers are required). At the same time, the Cabinet of Ministers obliged medical institutions to procure medicines exclusively through Prozorro.Market. 

As noted above, in 2020, the government transferred responsibility for the procurement of medicines from international organizations to the state-owned enterprise “Medical Procurement of Ukraine” (MPU). In fall 2021, the government allowed to procure drugs through managed entry agreements (MEA), enabling the purchase of innovative medicines under individual terms via direct negotiations with manufacturers. The terms of these agreements, excluding the price, must be published in the Prozorro system. The Cabinet of Ministers approves the list of medicines eligible for MEA procurement after a state evaluation of the medical technologies used in their production. At the same time, the government permitted MPU to purchase medicines not registered in Ukraine for the treatment of rare diseases. 

In January 2022, MPU launched the MedData system, which monitors both medicine procurement and inventories in each medical facility. In October 2022, the government introduced reference (maximum) prices for medicines. 

In September 2021, the government mandated that local authorities procure urban planning documentation expertise through Prozorro. At the beginning of 2022, Parliament passed an anti-reform measure — a law on localization in the machinery industry. Goods covered by this law include vehicles, generators, transformers, and similar products. Under this law, during procurement, buyers must give preference to goods with a localization level (i.e., the share of Ukrainian components) of at least 10% in 2022, increasing it to 40% by 2028. Parliament can revise the localization level for each year, and the government can adjust them for specific procurements. The law does not apply to participants of the WTO Government Procurement Agreement, including the EU and the US.

After the full-scale invasion, the government needed to rapidly procure many goods and services, which led to the temporary removal of procurements from the Prozorro system in favor of direct contracts. Procurement processes have been gradually returning to the Prozorro system since then.

After a series of scandals involving the Ministry of Defense (with billions of hryvnias lost in the procurement of weapons and other supplies), in March 2023, the Ministry was required to publish announcements for procurements that are not classified as state secrets. By the end of 2023, the government established two professional procurement agencies: the Defense Procurement Agency, responsible for weapons procurement, and the State Rear Operator, tasked with procuring other goods for the military. These agencies successfully procured a number of items at lower prices. Unfortunately, due to the conflict of the Minister of Defense with the head of the Defense Procurement Agency, the latter was fired. This significantly undermined Ukraine’s credibility among international partners.

In the fall of 2019, Parliament adopted a new Bankruptcy Code, which required that debtors’ assets be sold through the Prozorro.Sales system. Starting in January 2024, sanctioned assets are also sold via this system.

What next?

Over the past decade, there have been significant developments in the management of public finances. However, the tasks outlined for Ukraine in the IMF program, the Ukraine Facility plan, and the government’s revenue strategy remain substantial. The two main vectors of future reforms are (1) counteracting tax evasion and (2) using existing funds more efficiently. Additionally, Ukraine must harmonize its procurement and PPP legislation with the EU acquis and develop an effective system of public investment management for reconstruction.

For more efficient tax administration, Ukraine plans to:

• reform the Tax and Customs Services, particularly by improving their capacity to identify tax evaders and collect missing payments. This requires providing these services with access to more comprehensive data on the incomes of individuals and businesses (including confidential banking data). The prerequisite for this is the implementation of robust data protection mechanisms and the enhancement of staff capacity to process such information; 
• introduce a tax risk management system; 
• strengthen the capacity of local authorities to administer local taxes; 
• implement anti-corruption programs for the Tax and Customs Services and establish data-sharing arrangements with relevant EU agencies; 
• introduce a progressive personal income tax and reform the simplified taxation system while significantly reducing the scope of tax exemptions; 
• continue implementing the BEPS action plan and align certain taxes with European ones, including taxes on tobacco and alcohol, VAT, emissions taxes, and taxes on virtual assets.

To ensure more efficient use of public funds, Ukraine plans to:

• improve the medium-term budget planning system and implement annual spending reviews; 
• establish a fiscal risk management system; 
• enhance public debt management and launch a debt management agency; 
• implement a public investment management system (in particular, public investment should adhere to Ukraine’s strategic priorities and be included in the budget declaration and state budget laws. Ultimately, all public investment projects should be managed via the DREAM platform); 
• complete the reform of state-owned enterprises (see Chapter 11); 
• increase the independence and effectiveness of the Accounting Chamber and the State Audit Service, which will also play a key role in reconstruction efforts.

Recently, the Verkhovna Rada initiated the process to establish a Parliamentary Budget Office to enhance its expertise on budgetary and tax matters. Hopefully, the experience of the Office for Financial and Economic Analysis will be preserved, and the newly created office will become a center of excellence in public finance management.