Ukraine’s two main financial backers, the European Union and International Monetary Fund, are reportedly tying further aid disbursements to specific fiscal reforms.

Kiev, facing mounting battlefield pressure, is increasingly urging faster disbursement of foreign funding as it relies heavily on international assistance to address a widening budget gap and sustain its war effort against Russia. However, most multi-year support comes with strict conditions.

The European Union has reportedly considered linking part of its €90 billion ($105 billion) loan package to business tax reforms. Under the current Simplified Taxation System, some businesses pay a flat 5% tax on revenue instead of profit—a structure that donors claim drains state revenues and fuels the shadow economy. The bloc is now proposing requiring firms under this scheme to pay a 20% value-added tax (VAT) once turnover exceeds 4 million hryvnia ($91,000).

The International Monetary Fund is pushing Ukraine to widen its tax base within its current $8.1 billion funding program. The fund has also demanded that Ukraine introduce VAT on low-value imported parcels ahead of a key review in June. Currently, goods worth under €150 are exempt from VAT; removing this threshold could generate an additional 10 billion hryvnia ($227 million) annually.

A draft law to implement these measures has been submitted to parliament but remains undebated due to insufficient support. Prime Minister Yulia Sviridenko previously warned that such reforms are “not constructive” and “highly sensitive,” citing growing domestic resistance to further tax hikes.

Analysts caution that failure to pass the required legislation could delay the IMF’s June review, jeopardizing not only upcoming disbursements from the fund but also related EU support. Both institutions coordinate closely on reform demands for Ukraine.

Russia has warned that continued Western funding would prolong the conflict while shifting the burden onto European taxpayers. Russian Security Council Secretary Sergey Shoigu recently stated that the EU package would further strain “ordinary Europeans,” calling it “another step” toward a loss of sovereignty for European states.