Ukraine
Policy Study
Executive Summary
Based on 2024 data, the simplified tax system (STS) covers approximately 1.5 m private entrepreneurs (PEs) and generates around UAH 2.5 tn (~EUR 50 bn) in reported turnover. The regime is predominantly used by businesses operating in wholesale and retail trade (including vehicle repair), which account for around 559 thsd PEs (38% of all STS participants) and generate UAH 1.2 trillion in turnover (49% of total STS turnover). A substantial majority of these entrepreneurs (around 68%) operate under Group 2, which is subject to a fixed monthly tax of up to UAH 1,600 (as of 2024), regardless of actual turnover.
As of 2026, the STS thresholds and tax parameters differ from 2024 (e.g., Group 2 monthly tax amounts to UAH 1,730). A limitation of the analysis is that it relies on 2024 data, as the available statistics on the distribution of PEs by number and turnover are reported for 2024, ensuring consistency across the analysis.
Both our calculations and the case studies presented in this paper indicate that the highest concentration of business fragmentation is observed primarily in the trade sector, as well as in HoReCa and manufacturing. The most prevalent practices include artificial splitting and multiplication of PEs, concealed turnover, grey imports, and non-transparent product origin, particularly in goods-related activities. It is important to distinguish between two conceptually different phenomena: tax avoidance and tax evasion. Tax avoidance refers to formally legal optimisation strategies that rely on design features and loopholes of the current tax framework, allowing economically integrated businesses to minimise their effective tax burden while remaining within the law. Tax evasion, by contrast, involves illegal practices such as smuggling, concealed turnover, and nontransparent product origin, which directly undermine tax compliance, consumer protection, and fair competition.
These two dimensions require distinct policy responses. Tax avoidance reflects structural weaknesses in the design of the STS, while tax evasion points to enforcement and compliance failures. Effective reform therefore depends on addressing their interaction rather than treating them as a single phenomenon. As a result, the STS has, to a significant extent, evolved beyond its original purpose. While initially designed to support genuinely micro-scale businesses in entering the formal economy and gradually scaling up, the regime now functions as a structural enabler of both tax avoidance and, in some sectors, tax evasion, particularly in trade in goods. This transformation undermines tax neutrality, distorts competition between compliant and non-compliant businesses, and weakens consumer protection, as non-compliant models are able to undercut prices while avoiding basic guarantees of quality and origin…read more…
