NO TO PRESSURE ON SMALL BUSINESSES: THE ASSOCIATION OF FRONTLINE CITIES AND COMMUNITIES CALLED ON THE GOVERNMENT AND PARLIAMENT TO SUPPORT ENTREPRENEURS IN FRONTLINE AREAS

More than 300 members of the Association of Frontline Cities and Communities of Ukraine adopted a joint statement on the need to develop a separate, systemic state policy to support small and medium-sized enterprises (SMEs) in frontline areas.

Members of the Association expressed concern over initiatives aimed at increasing tax and regulatory pressure on small and microbusinesses, in particular plans to introduce mandatory payment of 20% VAT for individual entrepreneurs with annual turnover exceeding UAH 1 million.
According to the Association’s members, such decisions in wartime conditions may have the opposite effect—leading to the shadowing of the economy, business closures, rising unemployment, and the loss of economic resilience in frontline communities.

“Supporting small and medium-sized businesses in frontline communities is neither a concession nor a privilege. It is a pragmatic state decision, without which it is impossible to preserve the economy, jobs, and the lives of people living in close proximity to the war,” said Ihor Terekhov.

The Association of Frontline Cities and Communities emphasizes that small and medium-sized businesses in these regions are not merely an element of the economy, but the foundation of territorial viability. They provide the majority of jobs, ensure access to basic goods and services, fill local budgets, and directly influence the demographic resilience of communities along the front line.

Another factor of financial destabilization is the launch of a mechanism for the automatic recovery of tax debts without consideration of wartime conditions. In frontline communities, such debts are largely the result of hostilities and the destruction of economic and critical infrastructure, rather than non-compliance with tax discipline. Their automatic recovery deprives communities of the resources needed for recovery, provision of basic services, and support to local businesses.

In its joint statement, the Association of Frontline Cities and Communities of Ukraine calls on the Government and the Verkhovna Rada, in particular, to: prevent increased tax pressure on small and microbusinesses in frontline areas; establish at the state level a special business support regime for frontline communities; ensure the effective functioning of war risk insurance; expand access for frontline businesses to concessional lending, taking security risks into account; simplify and unify access to state support programs; postpone changes to tariff policy in the gas distribution sector and ensure compensation mechanisms; introduce a separate regime for the application of automatic tax debt recovery or provide a state subvention to support local budgets; and implement comprehensive business support packages combining loans, grants, and compensation mechanisms.

The Association of Frontline Cities and Communities of Ukraine will continue systematic engagement with the Cabinet of Ministers of Ukraine and the Verkhovna Rada of Ukraine to develop and implement effective and balanced solutions to support businesses in frontline areas.

The Association of Frontline Cities and Communities, which brings together more than 300 leaders of local self-government bodies in frontline territories, expresses its consolidated position on the need to develop a separate, systemic state policy to support small and medium-sized enterprises in communities along the front line.

Small and medium-sized businesses in frontline communities are not only a component of the economy, but also the foundation of territorial viability, providing around 70% of jobs, access to goods and services, revenues to local budgets, and directly influencing the demographic resilience of communities.

Under martial law, entrepreneurs in frontline regions operate in an environment of increased risks – security, logistical, human resource, and financial. These conditions differ significantly from those in rear regions and require distinct, tailored instruments of state support.

The Association notes with concern the existence of initiatives aimed at increasing the tax and regulatory burden on small and microbusinesses, in particular through the introduction of mandatory payment of 20% value-added tax (VAT) for individual entrepreneurs with a relatively modest annual turnover of UAH 1 million.

In the Association’s view, such approaches in wartime carry the risk of producing the opposite effect: increased shadowing of the economy, closure of small businesses, rising unemployment in frontline communities, and, as a result, the loss of the economic foundation for their development.

Another challenge to the economic and social resilience of frontline territories is posed by initiatives of the National Energy and Utilities Regulatory Commission (NEURC) to increase natural gas distribution tariffs for enterprises. For frontline communities, heating supply during wartime is not a matter of comfort, but a matter of security, preservation of human life, and community stability.
Raising gas distribution tariffs creates a critical additional burden on heat supply enterprises that are already operating under extremely difficult conditions—with damaged infrastructure, accumulated debts, and the absence of systemic state compensation. Under such circumstances, increased costs without appropriate compensation mechanisms lead to further debt accumulation, risks of disruption to the heating season, and forced shifting of the financial burden to other consumers, including businesses.

For small and medium-sized businesses in frontline communities, this means an additional financial blow at a time when entrepreneurs are already operating amid war, declining demand, labor shortages, logistical difficulties, and limited access to credit. For local budgets, it means increased financial pressure and additional risks. For people, it jeopardizes the stability and continuity of the heating season.
Another source of financial instability for frontline communities is the introduction of an automatic tax debt recovery mechanism that does not take into account wartime conditions in the frontline regions.

In communities that are systematically subjected to shelling, destruction of critical infrastructure, and loss of their economic base, tax debts are largely the result of the war rather than ineffective management. At the same time, the automatic recovery of such debts leads to the withdrawal of resources needed for recovery, provision of basic services to the population, and support for local businesses.
In the absence of special state compensation mechanisms or a differentiated approach to frontline territories, the application of automatic tax debt recovery creates the risk of further weakening the financial capacity of communities and undermines their economic and social resilience.

In view of the above, the Association of Frontline Cities and Communities appeals with the following requests:

1. To prevent the strengthening of tax pressure on small and microbusinesses in frontline territories, in particular through the introduction of mandatory 20% VAT for individual entrepreneurs with low and medium income levels, or to revise the relevant initiatives taking into account the realities and specificities of frontline regions.

2. To enshrine at the state level the principle of a special support regime for small and medium-sized businesses in frontline communities as an element of economic resilience and preservation of human potential.

3. To ensure the launch and effective functioning of war risk insurance instruments for businesses, including through the provision of state guarantees and the involvement of international partners.

4. To expand access to concessional lending for small and medium-sized businesses in frontline regions on terms that reflect the real risks of operating in combat zones and adjacent territories.

5. To unify and simplify the rules for entrepreneurs in frontline communities to access state support programs, providing for a separate category of projects with a high level of security risk and priority consideration, including through the capabilities of the newly established National Development Institution, which can become one of the key instruments for implementing state policy to support businesses in frontline territories.

6. To postpone the planned changes in tariff policy in the field of natural gas distribution and ensure effective state support mechanisms for thermal energy enterprises, especially in frontline regions, as a key element of stable passage through the heating season and preservation of economic activity in communities.

7. To provide frontline communities with a separate regime for applying the mechanism of automatic tax debt recovery or to introduce a dedicated state subvention to support local budgets, enabling communities to provide targeted support to business entities whose tax or other debt obligations arose as a result of hostilities, destruction of economic and critical infrastructure, rather than for other, non-war-related reasons.

8. To introduce comprehensive business support packages combining lending, grants, and compensation mechanisms, with a particular focus on small-scale manufacturing, processing, and services critical to communities.

The Association emphasizes:

Support for small and medium-sized businesses in frontline communities is not a form of privileges or concessions. It is a pragmatic government decision aimed at preserving economic activity, jobs, and human lives in regions located in close proximity to areas of active hostilities.

The Association of Frontline Cities and Communities expresses its readiness for continued dialogue with the Government and the Verkhovna Rada of Ukraine in order to develop and implement effective and balanced solutions in the field of supporting frontline businesses.

5 January 2026