Ukraine Plans War-Risk Insurance Fund, Considers 1% VAT Increase to Cover Business Losses

Ukraine is seeking to establish a First Loss Fund to support war-risk insurance for businesses, with a one-percentage-point increase in VAT being considered as a way to raise Ukraine’s contribution to the mechanism, according to speakers at the European Business Association’s “Global Outlook: The Next Economy” conference.The proposed mechanism comes in response to mounting losses businesses have suffered from missile and drone strikes, particularly as companies in logistics and other sectors struggle to insure their assets against war risks. The fund is intended to make such coverage more accessible and help attract additional financing from international partners.JOIN US ON TELEGRAMFollow our coverage of the war on the @Kyivpost_official.Ukraine wants to raise about $1 billion domestically and attract at least another $1 billion from international partners, with the potential for $2-3 billion in additional financing.A one-percentage-point VAT increase was discussed as one possible source of Ukraine’s contribution to the fund.Business leaders debate VAT increaseSpeakers at the conference – Oleksandr Kravchenko, minister of economy and environment of Ukraine; Tomas Fiala, CEO of Dragon Capital; Oleksandr Komarov, CEO of Kyivstar; Oleksandr Farkosh, general director of JTI Ukraine; and Roman Yanovych, general director of Nestlé Ukraine and Moldova – supported the need for a functioning war-risk insurance mechanism but expressed different views on how it should be financed. Other Topics of Interest Russian Strikes Kill 6, Wound At Least 17 Across Ukraine At least two children were injured as Russian forces launched a sweeping barrage of strikes across Ukraine. The proposal comes as war-risk insurance remains expensive and unavailable for some businesses and assets. Tomas Fiala, CEO of Dragon Capital, said that only about 5% of the company’s assets are currently insured, while insurance in Ukraine costs more than 6% of asset value.Fiala also pointed to significant losses at Lloyd’s, saying reinsurance losses over the past two years had reached around 200%.Fiala said international partners expect Ukraine to make a contribution of its own. He also said he had recently met with the World Bank, which is consulting the Ukrainian government on war-risk insurance. Businesses expected the government to pair the proposed tax increase with efforts to reduce the shadow economy and corruption, he added.Regarding the proposed one-percentage-point VAT increase, Fiala said he understood the rationale behind the measure because he could see what the government wanted to achieve, while noting that Dragon Capital would not be a major beneficiary of the proposed fund.Komarov of Kyivstar said a one-percentage-point VAT increase would be understandable if it was tied to a mechanism addressing the insurance problem.He also called for greater efforts to reduce the shadow economy and increase state revenues from the gray market.According to Komarov, the existing insurance process involves numerous conditions, bureaucracy, and reinsurers, with disputes potentially requiring proceedings in English courts. He also said Kyivstar had sought compensation for losses sustained in 2022 and received about 50% of the amount in 2025, worth more than $10 million.Kyivstar currently pays 7-8% of the value of its assets for war-risk insurance and cannot insure some assets in central Ukraine, Komarov said.Yanovych of Nestlé Ukraine and Moldova said he was concerned that a VAT increase could push up prices and weaken consumer demand for products such as noodles, ketchup and mayonnaise. However, he added that he did not see an effective alternative to establishing a war-risk insurance system and argued that such a mechanism is necessary to maintain Ukraine’s investment attractiveness.Yanovych said the availability of war-risk insurance is important for companies deciding whether to continue operating and investing in Ukraine rather than moving production abroad.Shadow economy as a potential source of fundingFarkosh of JTI Ukraine, said the tobacco sector’s shadow market accounts for 19.8% and costs the state approximately Hr. 27 billion ($604.8 million) in lost revenue.The discussion suggested that reducing illegal tobacco flows could provide an alternative source of additional state revenues that could be directed toward financing the proposed mechanism.Previously, Kyiv Post wrote that raising VAT can fuel inflation. An official familiar with the tax discussions who asked to remain anonymous told Kyiv Post that VAT increases are understood to push inflation upwards for the first 12 months before the impact eases:“VAT is an indirect tax that influences the price directly, so the military levy is less inflationary. VAT is indeed paid by those who consume rather than earn. We counted that a 1% increase in VAT adds about 0.7–0.8% to inflation.”The VAT option, of course, has the advantage of being collected from everyone.“The vulnerable will always pay military levy, but entrepreneurs and shadow economy actors won’t pay it – a VAT increase would force them to do so,” the source added.