Ukraine's PM ties 2027 VAT hike to war-risk insurance fund for businesses hit by Russian strikes
Prime Minister Serhiy Koretsky said a planned 1-percentage-point increase in Ukraine's standard VAT rate, from 20% to 21% under the draft 2027 state budget, is needed to finance a new fund that would promptly compensate businesses for damage caused by Russian missile and drone strikes. Speaking to TSN.Tyzhden, he said Ukraine plans an initial state contribution of about $1 billion, with the government expecting international partners to add roughly four times that amount for a total fund of about $5 billion.
Key points
- Draft 2027 state budget raises standard VAT from 20% to 21%, a 1-percentage-point increase.
- PM Serhiy Koretsky said the extra revenue will finance a war-risk insurance fund for businesses hit by Russian strikes.
- Ukraine plans an initial state contribution of about $1 billion, expecting partners to add roughly $4 billion for a $5 billion total fund.
- Under the proposed mechanism, businesses would receive compensation immediately after rescuers verify the incident.
- Koretsky said classic war-risk insurance is currently unworkable due to high costs and lengthy payout processes.
- The Verkhovna Rada received the draft 2027 budget on September 15 and sent it to the Budget Committee.
Why it matters
The measure directly raises consumer prices and business costs at a time of war, making it a politically sensitive choice. The government has tied the new revenue to a concrete protection mechanism for businesses hit by Russian strikes, but the fund only reaches its planned $5 billion size if international partners roughly quadruple Ukraine's own $1 billion contribution. Koretsky acknowledged the unpopularity of the decision and said no alternative financing was available.
What happened
In an interview with TSN.Tyzhden, Prime Minister Serhiy Koretsky explained that the draft 2027 state budget raises the standard VAT rate by one percentage point, from 20% to 21%. He said the additional revenue is earmarked for a new fund to promptly compensate losses caused by Russian missile and drone strikes. Ukraine plans to seed the fund with about $1 billion from the state budget and is counting on international partners to contribute roughly four times that amount, bringing the total to about $5 billion. Koretsky said the fund would let insurers offer war-risk policies to Ukrainian businesses at more affordable prices and reduce reliance on reinsurance abroad. Under the proposed mechanism, entrepreneurs would receive compensation immediately after rescuers verify the incident, replacing a system Koretsky described as unworkable because of high costs and lengthy payout waits. He acknowledged the VAT increase is unpopular but said there were no other sources to cover the costs. The draft 2027 budget was submitted to the Verkhovna Rada, Ukraine's parliament, on September 15 and has been sent to the Budget Committee for review.
Background
The draft 2027 state budget was submitted to the Verkhovna Rada, Ukraine's parliament, on September 15 and sent to the Budget Committee. In a September review, the European Bank for Reconstruction and Development lowered its forecast for Ukrainian GDP growth to 1.5% by the end of 2026 and 2.5% in 2027, cuts of 0.7 and 1.5 percentage points from its June forecast. The head of the World Bank has estimated that rebuilding Ukraine will require more than $580 billion over the next decade. A separate property war-risk insurance mechanism (EKA) has been operating since January 1, and under the EBRD's Enterprise Security Enhancement (ESE) programme part of a business loan can be written off because of property damage. Koretsky also noted that cheap VAT-free parcels imported from abroad harm Ukrainian business, saying 80% of such parcels are used by dishonest operators to split goods into small batches.