The Ministry of Finance has adopted the methodology for the evaluation of tax benefits

The Ministry of Finance of Ukraine has developed and adopted a methodology for the evaluation of tax policy instruments which result in tax expenditures. The availability of such a methodology will allow the Government to assess which benefits are really effective and useful for the country's economy and which ones create unnecessary and burdensome expenses for the State Budget. The evaluation will help to increase the efficiency of using limited financial resources, which is especially important in the context of martial law. 

Adoption of the methodology is one of the structural benchmarks (by the end of September 2024) for the fifth review of the Extended Fund Facility (EFF) Arrangement of the International Monetary Fund.

The National Revenue Strategy envisages more targeted and rational provision of tax benefits, minimization of losses of budget revenues and prevention of violations of the principle of fairness and economic efficiency. The Memorandum on Economic and Financial Policies between Ukraine and the International Monetary Fund provides for a phased approach: once the methodology for evaluating tax privileges is developed and adopted, it will be implemented in stages and gradually applied to all relevant issues, leading to a regular cycle of evaluation of all aspects over several years.


Why is the adoption of this document important for the development of Ukraine's tax policy?

Tax expenditures are the amount of tax revenues lost due to the application of any provision of tax or customs legislation that provides a tax benefit. In terms of its content, tax expenditures are budget expenditures that are indirectly provided through the instruments of state tax policy, rather than through budget allocations. The existence of tax expenditures makes it difficult for the Government to determine how to use public resources for the current budget period and to manage the way such resources are used in the future.

The methodology for the evaluation of tax policy instruments leading to tax expenditures approved by the Ministry of Finance is based on the analysis of the efficiency and impact of these instruments on the budget, economy and society.


The document defines a unified approach to the evaluation of tax policy instruments that lead to tax expenditures at the stage of their development - through ex-ante evaluation (to determine the cost of the respective benefit for the budget in the future, taking into account the needs of the medium term budget planning), and after implementation - through systematic ex-post evaluations (to determine the effectiveness of such instruments, the extent to which they achieve their stated goal and whether they need to be improved).

Incentives through tax benefits should be cost-effective. The evaluation methodology will help to identify inefficient and outdated instruments and replace them with more efficient ones. This does not mean that tax benefits will be canceled. It means that the person to whom a reasonable benefit is granted will receive the maximum benefit from it.

Evaluation and monitoring of the effects of tax instruments that lead to tax expenditures is a common practice in other countries, in particular in OECD countries. Among the countries for which such evaluation is systematic and transparent are the United States, the United Kingdom, Ireland, Canada, the Netherlands, Germany, etc.


Useful links:

Tax expenditures in OECD countries

How to evaluate tax expenditures. Fiscal Affairs Department of the International Monetary Fund

Tax expenditures in an era of transformative change. GTED 2023 report