The Scale of Ukraine's Shadow Economy Problem
Finance Committee Chairman Danylo Hetmantsev has revealed that Ukraine has lost over UAH 1 trillion in tax revenue due to shadow economy schemes. This massive shortfall has led him to criticize the government's plans for bringing economic activity into the legal fold, particularly the UAH 60 billion allocated for this purpose in this year's budget. Hetmantsev noted that this sum is solely projected to come from customs revenue and expressed serious doubts about the feasibility of actually collecting it.
While the state budget includes UAH 60 billion from de-shadowing efforts, Hetmantsev raised concerns that these funds are not tied to any specific expenditure plans. He emphasized that the Ministry of Finance does not genuinely expect to receive this money, as it is contingent on customs payments exceeding their targets—a scenario that has not occurred in recent years. Given these conditions, he considers it highly unlikely the full amount will be realized.
Proposed Reforms and Implementation Challenges
Furthermore, the Ministry of Finance has proposed that, starting in 2027, single tax payers with an annual turnover exceeding UAH 1 million be required to register as VAT payers. Hetmantsev argues that for de-shadowing to be effective, the job security of specific officials should be linked to performance metrics on reducing the shadow economy. He stressed the importance of establishing clear KPIs to determine whether the State Tax Service, the State Customs Service, and the Bureau of Economic Security are genuinely combating illicit financial flows.
In 2025, Ukraine's State Tax Service collected 97% of its planned tax revenue, highlighting the need for additional measures to improve tax collection and shrink the shadow sector. Hetmantsev called for more decisive action in the fight against the shadow economy to ensure stable budget revenues. The ongoing conflict has placed immense strain on public finances, making every hryvnia of potential revenue critical.
The issue of Ukraine's shadow economy remains pressing, and Danylo Hetmantsev's statements underscore the urgent need for reforms within the tax system.
Failure to meet de-shadowing budget targets could lead to serious financial consequences, requiring the government to take more resolute action to reduce the level of shadow economic activity and improve tax collection efficiency. Establishing clear performance indicators for officials could be a vital step in this direction.