Ukrainian government may raise taxes to insure businesses against Russian attacks

The Cabinet of Ministers plans to establish a special fund to insure businesses against war-related risks, although funding it may require a 1-percentage-point increase in value-added tax (VAT).

Source: Oleksandr Kravchenko, Ukraine's Minister of Economy and the Environment, at a press conference on 11 September

Quote: "According to our estimates, business losses from attacks could reach US$10 billion this year. That's an unprecedented scale.

We understand that the programmes we currently have – the loss compensation programme, and the 5-7-9% preferential lending scheme – can't meet the needs of all businesses. They work for small and medium companies, but don't cover the needs of large businesses."

Details: To address this, the government is proposing to establish an insurance fund to compensate businesses for the first US$10 million in losses from a Russian attack.

The insurance premium is planned to be set at 2% of the value of the asset. The programme could launch in early 2027 and would cover the whole of Ukraine.

The government also plans to bring private insurers into the business insurance programme.

This programme is expected to encourage private insurers to offer their services to businesses more actively, as they will know they will not be solely responsible for covering losses from Russian attacks.

Why raise taxes?

A 2% insurance premium on asset value will not be enough to fully sustain the fund's operations.

Quote: "At the outset, we need capital of US$2-3 billion. So we're talking about a substantial amount coming from Ukraine's side."

More details: The Ministry of Economy also said that, if insurance remains voluntary and VAT is not raised, capitalising the fund would require the insurance premium to exceed 20% of the asset's value.

Given how unaffordable such a premium would be, the government plans to recapitalise the fund with support from Kyiv's international partners and finance it through state resources, one possible source of which would be a tax increase.

The Ministry of Economy considers raising VAT from 20% to 21% the best solution and is leaning towards it. The alternatives are to introduce a temporary import duty or to roughly double existing import duties.

However, the decision to raise taxes is still under discussion and has not been finally adopted.

Short-term solutions

In addition to the long-term insurance fund, the Ministry of Economy is preparing several short-term solutions for businesses.

Specifically, the existing war-risk insurance programme, which allows businesses in frontline oblasts to receive up to UAH 30 million (US$674,000) in compensation, is planned to be extended to Kyiv and Kyiv Oblast.

The government plans to expand the 5-7-9 preferential lending programme to large businesses, since they suffer the most from Russian attacks on logistics and production facilities. The programme is currently available only to small and medium-sized businesses.

Background: In late August, think tanks specialising in economic policy approached the government with a proposal to focus not on directly compensating businesses for losses from the budget, but on increasing the volume of insurance, banking and international capital available.

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