Ukraine mulls raising its standard VAT rate from 20% to 21% to help fund a new war-risk
The Ukrainian government has included a potential one percentage point VAT increase in its draft 2027 State Budget.
The standard VAT rate would rise from 20% to 21%, subject to separate legislation being approved by the Verkhovna Rada. The government estimates the measure could raise UAH 58.7 billion.
VAT increase to fund war-risk insurance
The additional VAT revenue would principally support a new mechanism designed to compensate Ukrainian businesses suffering losses from Russian missile and drone attacks.
Prime Minister Sergii Koretskyi said Ukraine intends to make an initial contribution of around $1 billion to the proposed fund. The government hopes this domestic commitment will help attract further international financing, potentially increasing the fund to around $5 billion.
The scheme is intended to make war-risk insurance more accessible to Ukrainian businesses and provide faster compensation following confirmed damage.
The government argues that conventional insurance against war risks remains prohibitively expensive and difficult to obtain.
21% VAT rate not yet confirmed
Importantly, the VAT increase has not yet been legislated.
Ukraine’s Ministry of Finance describes the increase from 20% to 21% as one possible source of financing for the UAH 58.7 billion allocated to war-risk insurance and other financial support in the draft 2027 budget. It confirms that a final decision will require separate legislation.
The proposal therefore signals a potential 1 January 2027 VAT rate increase, rather than a confirmed change.
Ukraine’s 2027 budget is being prepared under continuing wartime financing pressures. The government plans expenditure of UAH 4.885 trillion on defence and security, equivalent to 43.8% of projected GDP.
Businesses should now monitor the parliamentary process for confirmation of the VAT increase and its effective date.
