Value-added tax on food and medicines to be cut by a quarter: what will happen to prices and individual entrepreneurs

In Ukraine, there was a proposal to sharply reduce the tax on basic foods and medicines—from the current 20% to 5%. The proposer was Kharkiv mayor Ihor Terekhov, who also cautioned against increasing the tax burden on individual entrepreneurs (FOPs).

At Terekhov's suggestion, the preferential VAT rate should apply to basic food products and medicines. He believes lowering the tax from 20% to 5% could support local producers and economic activity.

At the same time, lowering VAT does not by itself guarantee the same drop in store prices. Some of the tax difference could be retained by retailers through higher trade margins.

Therefore, Terekhov proposes simultaneously limiting retail margins and increasing oversight of compliance with these rules. Thus, his model envisions an immediate tax cut paired with price-setting control.

A reduction in the VAT rate would also mean potential decreases in budget revenues. Terekhov acknowledges that budgetary replenishment is within the government's competence, and defense needs remain the state's priority.

Among possible sources of additional funds, he named auditing state expenditures and abandoning programs that are not essential. He also believes it is worth review­ing the number of civil servants, analyzing shadow schemes and corruption risks.

Separately, the Kharkiv mayor spoke out against increasing taxes on individual entrepreneurs. According to him, an attempt to impose extra burden could have the opposite effect.

“FOPs will simply die out, go into the shadows, and there will be no tax revenue at all,” Terekhov said.

He also believes that without proper support, small business will first stay in frontline cities and communities, and later this trend could spread to western Ukraine.

Currently, a reduction of VAT on food and medicines to 5% is Terekhov's proposal, not a enacted change to tax legislation.