On February 9, a large-scale conference was held in Kyiv dedicated to combatting the shadow economy and finding balanced solutions between state fiscal requirements and the preservation of small entrepreneurship. The event was attended by Members of Parliament, representatives of the State Tax Service of Ukraine, the Bureau of Economic Security, business associations, and the expert community.
The key question of the discussion was how to fulfill the International Monetary Fund (IMF) requirements for “detshadowing” (reducing the shadow economy) without destroying small and medium-sized businesses (SMEs), which form the backbone of regional economic resilience.
What the Figures Show
According to data presented during the conference:
- Budget losses from business fragmentation schemes are estimated at 14–19 billion UAH per year.
- The largest volume of shadow funds is generated through “under-the-table” (envelope) salaries — 200–265 billion UAH annually.
- Smuggling accounts for another 105–120 billion UAH.
- In the energy equipment segment, over 60% of imports pass through “fly-by-night” (shell) companies.
These figures confirm that the primary problem is not the mass of small businesses, but systemic abuses and sophisticated shadow models.
Government Stance
MPs Yaroslav Zheleznyak and Oleksandr Kovalchuk publicly acknowledged the lack of a clear position from the Cabinet of Ministers regarding the future reform of Individual Entrepreneurs (FOPs) and urged the business community to be more proactive in shaping and defending its own stance.
Lesya Karnaukh, Acting Head of the State Tax Service, reported that the service has conducted nine large-scale studies on business fragmentation schemes but emphasized the current lack of legislative tools to respond effectively.
Business Position Supported by FEBA
Business associations firmly opposed the idea of introducing mandatory VAT for all FOPs with a turnover exceeding 1 million UAH. Their argument is clear: 99% of FOPs operate legally and should not be held collectively responsible for the 1% who violate the law.
Instead, targeted tools for combatting the shadow economy were proposed, which are fully supported by the Fuel and Energy Business Association (FEBA):
- Clear criteria for identifying “pseudo-FOPs” (disguised employment).
- Restrictions on FOPs collaborating with their former employers.
- Implementation of the European DAC-6 directive.
- A “group VAT payer” mechanism for related FOP entities.
FEBA consistently emphasizes: Reducing the shadow sector in the fuel and energy industry and related fields must occur through the control of real risks and schemes, rather than through fiscal pressure on legal businesses.
Small and medium-sized business is not the problem, but the state’s partner in filling the budget, maintaining employment, and ensuring stability in the regions. Following the conference, the parties agreed to continue the dialogue and prepare a consolidated position for the Verkhovna Rada and the Ministry of Finance. FEBA will be actively involved in shaping this position, advocating for the interests of legal fuel and energy businesses.
