VAT up to 21% and a 5–7% price hike: how the special fund for insuring military risks could make Ukrainians' shopping basket more expensive

The government has built into the draft state budget of Ukraine for 2027 the possibility of raising the standard VAT rate from 20 to 21 percent, as well as increasing the excise duty on fuel. According to RBC-Ukraine, these measures are being considered as a source of funding for a new large-scale mechanism — a special fund to insure businesses against military risks. No final decision on raising the rate has been made yet: to adopt it, the Verkhovna Rada must vote on the corresponding amendments to the Tax Code. Nevertheless, the funding for the program has already been written into the budget request for 2027, which makes the initiative one of the most discussed in the economic agenda of autumn 2026.

What the government is proposing

The purpose of the fund being created is to compensate enterprises for damage from Russian attacks, including from ballistic missiles and drones, in an amount of up to USD 10 million per first loss of a single company. According to official estimates, launching the mechanism requires USD 2–3 billion. The government proposes to fund the fund from several sources, including a possible VAT increase and a separate line of UAH 8.3 billion to protect enterprises in the fuel sector through a rise in the fuel excise duty. The draft 2027 budget already includes UAH 58.7 billion in resources for the new program supporting economic entities.

How this will affect the consumer

Rostyslav Korobka, Vice President of the Ukrainian Chamber of Commerce and Industry, emphasized in a comment to RBC-Ukraine that any VAT increase ultimately falls on the end consumer. "Any VAT increase falls on business, and as a result — on the ordinary citizen of Ukraine, on the end consumer of products, goods, and services," he noted. It is difficult to name the exact percentage of price increase, since the effect will vary by industry and product group, but the impact on the consumer basket and the level of consumption is, in his words, inevitable. The expert sees a separate risk in the rise of the fuel excise duty: logistics are included in the cost of a wide range of goods, and, according to the Chamber's estimates, this could lead to an increase in shelf prices by 5–7 percent.

The business perspective

According to Korobka, entrepreneurs may view the creation of the insurance fund with understanding, however, any tax increase is perceived negatively. An additional burden, under the fund's model, becomes 2-percent contributions from the value of assets, which, in the expert's assessment, limits enterprises' capacity for development and operational activities: "The greater the tax burden, the less working capital remains." The RBC-Ukraine interlocutor also pointed out that the government chose the "simplest and fastest" mechanism, because raising the rate even by 1 percent of VAT mainly affects "white" (formal) business and does not require unpopular targeted measures.

Contradictory data

There is a noticeable discrepancy in the figures in public statements and materials on the draft 2027 budget. On the one hand, launching the insurance fund requires, according to official estimates, USD 2–3 billion. On the other — the draft 2027 budget includes UAH 58.7 billion in resources for the program supporting economic entities, which at the current exchange rate is a substantially smaller amount than the declared threshold of USD 2–3 billion. Moreover, in some sources the VAT increase to 21% is presented as a parameter already built into the budget, while in others it is merely a "possibility" requiring a separate vote on the Tax Code. Thus, both the volume of funding and the legal status of the rate increase do not yet match across different versions, which calls for cautious interpretation until the law is adopted.

Alternatives and prospects

The Chamber's expert acknowledges that the country has other reserves — increasing customs payments, fighting the "shadow" sector and financial "schemes" — however, working with them takes more time, while the government needs "quick decisions and quick results." Korobka considers it unlikely that the scenario in which the MPs reject the initiative: "The government will prove these proposals with its arguments. I think that in such a difficult situation, with such a hole in the budget, the Rada will vote and support these initiatives." Thus, until the final vote in the Verkhovna Rada, the key question remains what exactly the combination of the VAT rate, the fuel excise duty, and business contributions will be, and how realistic the coverage of the declared need of USD 2–3 billion will turn out to be.