Since the invasion of Russia in 2022, Ukraine’s economy has taken a significant hit, with the country’s GDP shrinking by a quarter. However, the effects of war aren’t solely responsible for the government’s decreased tax revenue. Businesses, especially in the agriculture sector, are using the chaos to avoid paying their fair share.
Before the war, agriculture accounted for about 40% of Ukraine’s export income. But now, with the need to find safe export routes away from Russian attacks, the sector has been upended. Ukraine’s deputy minister for agriculture, Taras Kachka, acknowledges that this upheaval has given farmers ample opportunity to “optimise taxes”.
The conflict has also led to around 6.5 million Ukrainians fleeing the country, reducing the domestic food market by 15%. Meanwhile, Russia has been targeting transport infrastructure, grain silos, and other agricultural equipment, resulting in increased costs for farmers. Additionally, many workers have been recruited by the armed forces, leaving the agricultural sector short-staffed. As Mr Kachka points out, “If you can drive a tractor, you can drive a tank”. This has led to a situation where an estimated two out of every five tonnes of grain harvests are not contributing to state coffers.
The combination of a shrinking domestic market, increased costs, and a shortage of workers has pushed farmers to find ways to avoid taxes, further straining Ukraine’s already struggling economy. This situation highlights the challenges faced by businesses in Ukraine amidst the ongoing conflict and underscores the need for effective governance and enforcement mechanisms to ensure tax compliance.
As Ukraine continues to navigate the complexities of war and economic turmoil, it is crucial for the government to address tax evasion in the agricultural sector and implement reforms to support businesses in contributing their fair share. Only through strong governance and transparency can Ukraine rebuild its economy and ensure a sustainable future for its citizens.
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