Parliamentary data shows 94 economic sectors cut tax payments despite revenue growth, directly reducing ammunition purchases and soldier salaries.
Ukraine’s defense spending now equals its entire domestic tax revenue. Therefore, any decline in business tax contributions is a direct reduction in military capability.
Danylo Hetmantsev, chair of the Verkhovna Rada’s finance committee, reported that new parliamentary data show businesses across 94 economic sectors increased sales but decreased tax payments during January-August 2025.
Each hryvnia businesses don’t pay, which means ammunition is not purchased, soldiers are not paid, and defense production is not funded.
The timing couldn’t be worse
Ukraine allocated $53.5 billion to defense in 2025—26.3% of GDP, roughly equivalent to all projected domestic revenue. By the first quarter of 2025, Ukraine had already spent 75% of its entire state budget on defense, with international aid covering civilian functions while domestic taxes fund military operations.
As Russia maintains offensive operations across multiple fronts, Ukraine can’t afford any funding shortfall right now. Yet businesses are creating exactly that shortfall.
The numbers show a troubling pattern across the national economy. Take beer producers: they sold 2.86 billion hryvnias ($68.1 million) more beer (+8.3%) in the first eight months of 2025 but paid 47.1 million hryvnias ($1.12 million) less in VAT (−2.8%). Corporate income tax shows the same pattern—income up 9.8%, payments down 4.8%.
Plastic packaging manufacturing shows even sharper contradictions. Firms expanded output by 2.9% (569 million hryvnias / $13.5 million) while slashing VAT contributions by 106 million hryvnias ($2.52 million) (−24.8%). Their profit tax followed the same trajectory: income increased 5.2%, but payments fell 16.8%.
Data analytics catch what audits miss
“Business shows growth, but less reaches the budget,” Hetmantsev stated. “And these are not isolated cases—dozens of such sectors.”
The parliament’s finance committee identified 94 sectors with declining VAT payments and 92 with falling profit tax contributions despite revenue growth.
Hetmantsev emphasized the shift from physical inspections to analytical detection: “To see the problem, you don’t need to go out to enterprises with audits. Quality tax control requires analytics—it should be the first to catch anomalies in indicators. If supply volumes grow and tax accruals fall, this should immediately raise questions. At the level of data analytics, not after hundreds of millions of hryvnias have ‘disappeared.’”
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The pattern raises uncomfortable questions for Ukraine’s international partners. Western partners have provided over $309 billion from at least 41 countries since 2022, structured around the assumption that Ukraine would maintain robust domestic revenue collection. Systematic tax decline means Western taxpayers effectively subsidize Ukrainian businesses’ tax optimization while their governments press for military support increases.
Compare this to Britain during WWII: by 1944, tax revenue had increased 300% from pre-war levels as businesses accepted wartime fiscal obligations.
Ukraine’s trajectory moves in the opposite direction—businesses are growing, tax payments are shrinking, and foreign donors are filling gaps.
The government structured the 2025 budget assuming substantial tax collection would cover military spending while international partners funded civilian operations. Systematic tax reduction undermines this model. Ukraine tripled its military levy from 1.5% to 5% in December 2024 to close defense funding gaps, yet businesses found ways to reduce overall contributions.
Businesses owe an explanation
Hetmantsev acknowledged that economic factors might explain some discrepancies—input cost increases, margin compression, legitimate deductions—but stressed these must be verified rather than assumed. “There may be grounds for this, but they definitely need to be clarified,” he noted on his Telegram channel.
The question extends beyond tax administration quality. “When the budget receives less, we all lose,” Hetmantsev said.
“This is a question not only for the tax authorities and the quality of their work, but also for the consciousness of business. Because during the war, minimizing tax payments means minimizing defense, roads, salaries, and life.”
Ukraine’s fiscal model assumes businesses pay taxes proportional to economic activity. When 94 sectors simultaneously show revenue growth alongside tax payment declines, the model faces systemic stress precisely when the country can least afford it.
The broader fiscal context amplifies these concerns. Ukraine’s debt servicing consumes 42% of domestic revenues, leaving a limited margin for tax collection shortfalls. The government projects needing $120 billion for military spending in 2026, even if fighting intensity decreases, making sustained domestic revenue generation essential for maintaining defense capabilities.
Every hryvnia that disappears from tax collection reappears as unfunded military needs or additional requests to Western partners already facing domestic political pressure over Ukraine support.
