The analysis conducted by the Business Ombudsman Council (BOC) shows that, in its current form, the initiative may become a critical burden for small and micro businesses. This is outlined in the Council’s official position on the draft law introducing mandatory VAT registration for simplified taxpayers once they reach a turnover threshold of UAH 1 million. The BOC has already submitted this position to the Ministry of Finance and the State Regulatory Service of Ukraine.
Why is this risky?
- The draft law automatically assumes that simplified taxpayers are prone to tax schemes and abuses, without any statistical evidence to support such claims. This contradicts the principle of the presumption of good faith and undermines trust between the state and business. The Council firmly believes that addressing violations should rely on targeted, risk-based instruments rather than creating problems for an entire category of taxpayers (37.5% of all simplified taxpayers).
- This is not the first time the state has significantly underestimated the costs borne by entrepreneurs. According to the official analysis, annual VAT compliance costs for an entrepreneur are estimated at UAH 2,751 per year. However, independent studies show that VAT compliance for such entrepreneurs may cost more than 40 times as much — approximately UAH 120,000 per year. These costs include accounting services, preparation of new reporting forms, time spent studying legislation, and resolving newly emerging issues. A similar situation occurred in October 2022, when the criteria for classifying business transactions as risky were expanded. At that time, the Council received a large number of complaints, while the state likewise underestimated the potential costs for entrepreneurs, leading to prolonged public dissatisfaction.
- Due to the obligation to register VAT invoices, new VAT payers will fall under the VAT monitoring system, which may become a significant obstacle to day-to-day business operations. For small businesses, being classified as “risky” effectively means a suspension of activity, while the absence of registration of an “input” VAT invoice deprives them of working capital for an extended period. As a result, the potential costs for small entrepreneurs related to addressing SMKOR issues may turn into an excessive administrative burden and may fail to deliver the expected budget revenues.
The figures nobody is talking about:
- The UAH 1 million threshold has remained unchanged since 2015.
- The decision fails to take into account inflation over the past 11 years. A simple comparison illustrates this clearly: at the exchange rate as of 1 January 2015, when the threshold was introduced, UAH 1 million equalled USD 63.4 thousand, whereas at the exchange rate as of 1 January 2026 it equals USD 23.6 thousand — meaning that the hryvnia has depreciated almost threefold over this period.
- Today, an equivalent threshold adjusted for inflation should be approximately UAH 4 million.
The Council’s recommendations:
- Conduct an audit of the SMKOR system and analyse how invoice suspension will affect new VAT payers before implementing the changes.
- Increase the VAT registration threshold to an economically justified level, taking into account inflation over the past 11 years.
- Introduce the changes gradually in order to avoid a shock burden on the economy.
And most importantly, when shaping public policy, the state should view business as a partner, not as a potential violator.
