Ukraine is discussing a new mechanism to finance compensation for businesses whose assets have been destroyed as a result of the war. One of the options under consideration is a temporary one-percentage-point increase in the standard VAT rate. The current standard rate is 20%, meaning it could rise to 21% if the proposal is implemented. A two-percentage-point increase was initially discussed, but no final decision has yet been made.
The additional tax revenue would not be used for general government spending but would instead be directed to a special-purpose fund. The fund would compensate businesses whose production and storage facilities have been damaged or destroyed by military action. Under the proposed model, the higher VAT rate would apply only during martial law.
The proposal also includes an insurance mechanism. VAT-paying companies could insure their production or storage assets by paying approximately 2% of their value. The maximum compensation for a single company is proposed at $10 million. This means that obtaining $10 million in insurance coverage would require a contribution of $200,000. Inventories and raw materials would not be covered by the scheme.
Ukraine is expected to raise around $1 billion to support the mechanism, with another approximately $1 billion potentially provided by international partners through co-financing. The additional VAT revenue is being considered as one source of Ukraine's contribution. However, a VAT increase could ultimately affect consumer prices, which is why the proposal is still being discussed with businesses. The Ministry of Economy has stressed that this is currently a working model rather than an approved decision, and its parameters may still change.