The updated Memorandum of Economic and Financial Policies under Ukraine’s Extended Fund Facility (EFF) program with the International Monetary Fund (IMF), following the first review, contains seven new structural benchmarks, six of which are fiscal in nature, according to the document released by the Fund on Tuesday.
According to the memorandum, Ukraine’s nearest commitment under the program is to adopt by the end of July legislation introducing a tax on income earned from digital platforms and the removal of the tax exemption on low-value imports via postal packages.
While the Verkhovna Rada passed the law on taxation of digital platforms (Law No. 4903-IX, bill No. 15111-d) as early as June 9, it has yet to be signed by the president. Meanwhile, the government has not yet submitted to parliament the bill introducing taxation of imported parcels valued at up to EUR 150, and parliament has already recessed until mid-August.
Under the updated program, two additional new structural benchmarks must be met by the end of August, both involving the submission to parliament of amendments to the Tax Code.
The first set of amendments concerns reforming transfer pricing rules in line with OECD standards, requiring all enterprises to comply with the arm’s-length principle, and limiting interest deductibility in accordance with the EU Anti-Tax Avoidance Directives (ATAD). This represents a modification of the original program, under which Ukraine had committed to submitting the relevant bill to parliament by the end of June.
The second set of Tax Code amendments provides for raising the threshold for unscheduled audits upon VAT refund requests and negative VAT liabilities from 100,000 to UAH 1 million.
By the end of October, Ukraine shall enact legislation to ensure the independence of the National Energy and Utilities Regulatory Commission (NEURC) and improve nomination procedures. By the end of December, it shall adopt new key performance indicators (KPIs) for the State Tax Service.
Also by the end of December this year, Ukraine shall submit anti-tax avoidance rules aimed to prevent abuse of the simplified taxation regime. By the end of April next year, it must abolish the VAT exemption for entrepreneurs operating under the simplified tax regime and raise the VAT registration threshold effective January 1, 2028. The original program had called for the adoption of legislation containing these provisions by the end of March this year, but the Ukrainian authorities were able to convince the Fund that it would be impossible to secure parliamentary approval under the current circumstances and that these commitments therefore needed to be postponed.
In addition, the deadlines for two key commitments included in the original version of the program have been pushed back by several months.
Previously, the National Agency on Corruption Prevention (NACP) was expected to adopt new regulations establishing a risk-based asset declaration verification system, prioritizing senior public officials in specified high-risk areas, by the end of June. The new deadline is the end of September this year.
Furthermore, during the first program review it was agreed that a technical analysis quantifying the cost of existing subsidies in the electricity, gas, and heating sectors (quasi-fiscal activities, QFA), the distribution of current subsidies, and scenarios for fiscally sustainable reforms aimed at achieving gradual cost recovery while ensuring adequate protection for vulnerable consumers, should be completed by the end of July. The new deadline has now been moved to the end of October. The IMF will provide the Ministry of Energy with technical assistance in preparing the report.
As reported, the IMF Executive Board approved the first review of Ukraine’s four-year EFF program overnight into Tuesday, allowing for the immediate disbursement of approximately $690 million under the second tranche. However, the Board also noted that several performance criteria had not been met and cautioned against any rollback of reforms. Including the first tranche, total disbursements under the $8.1 billion program, approved at the end of February this year, will amount to approximately $2.2 billion.
