Ukraine's Ministry of Economy and Environment plans to establish a state fund to compensate for the first losses (first loss) of businesses from enemy attacks. This was announced by Economy and Environment Minister Alexander Kravchenko at the Global Outlook event organized by the European Business Association in Kyiv. According to him, the government is developing a mechanism to reimburse enterprises for part of their losses from shelling, with the funding source being a one-percentage-point increase in the value-added tax rate — from 20% to 21%.
The “first loss” mechanism and the VAT rate
The proposed model involves accumulating around $1 billion in state contributions through the VAT increase. The minister emphasized that raising the tax is the optimal solution, as it covers all sectors of the economy, is easy to administer, and encourages the formalization of business: only VAT payers will be eligible for the program. Kravchenko described the situation as a “crossroads” — either Ukraine finally launches war insurance mechanisms, or it remains in the current mode, where business needs support but the government's capacity is limited.
Why not an import levy
The Ministry of Economy explained that it had considered alternative options for funding the fund, including introducing an additional import levy. This idea was abandoned due to the risk of higher inflation. According to government estimates, a 1 p.p. VAT increase would lead only to a slight rise in inflation — approximately 0.8 p.p. Thus, the VAT rate was chosen as the least inflationary and most manageable instrument.
Fund parameters and funding sources
According to the minister, launching the fund will help attract an additional $1–2 billion from international partners. The special fund will begin operating at the start of 2027 through the state “Export-Credit Agency.” The compensation limit will be $10 million, and the rate for program participants — 2% of the coverage amount. Importantly, the fund will cover enterprise losses, but does not extend to goods. Kravchenko added that launching the fund will simplify the work of commercial insurance companies and, over time, open up the international reinsurance market, which is currently effectively closed to Ukraine.
Contradictory data
The minister's wording differs slightly in emphasis across different outlets. In RBC-Ukraine's materials, the VAT increase is called an “optimal solution,” while in Interfax's headline it is presented as the “only solution” for quickly forming an insurance fund. In substance, both versions describe the same mechanism, but the degree of categorical assessment differs. Moreover, all stated parameters (21% rate, $10 million limit, 2027 launch) are still at the stage of government development and proposals, not an adopted law, which is important to consider when interpreting the figures.
Context: from Lugano to 2026
The minister recalled that discussions of large-scale war insurance have been ongoing since the Lugano conference in July 2022, yet as of 2026 there is still no effective mechanism. Previously, Alexander Kravchenko stated that Ukrainian business losses from Russian attacks in 2026 could amount to $10 billion. In this context, the government states its intention to expand support programs for entrepreneurs and work on creating a war-risk insurance mechanism for business.
