Untimely VAT refund is a systemic problem for Ukrainian economy and steel sector

Ukrainian exporters are dependent on full and timely refunds of VAT, as this is their working capital, the deficit of which is particularly acute in war conditions. When public funds run low, fiscal authorities often resort to questionable practices—such as disputing valid tax invoices—to delay or deny exporters their rightful refunds, effectively stealing from businesses to plug budget gaps. This problem arises periodically, becoming a significant obstacle for the sustainableoperation of Ukrainian export-oriented business.

Businesses need working capital

Value-added tax (VAT) refunds from the state budget serve as a reimbursement for the VAT paid by companies on goods, services, or works that they purchase. This mechanism is essential to avoid double taxation on Ukrainian exports– both domestically and in the destination country, thereby reducing the competitiveness of Ukrainian exporters.

The situation with VAT refunds is used both to put pressure on Ukrainian business and top up the state budget. If revenues are scarce, tax authorities start to come up with “options” to reduce reimbursement payments. For instance, tax authorities start classifying certain transactions with counterparties as “risky.” As a result, well-established and transparent companies – particularly those operating officially within industrial sectors – can face unjustified risks under the pretext of combating questionable activity.

According to Advanter Group research, the blocking of invoices (29.6% of responses) ranks first in the list of business problems in interaction with the state authorities. Tax authorities also frequently raise unsubstantiated claims concerning alleged underreporting of tax liabilities or overstatement of VAT credits. These issues tend to resurface periodically, disrupting cash flow and hindering financial planning—challenges that are particularly severe during wartime conditions.

“The company registers its VAT, the refunding exporter receives it, and all legally registered declarations are reflected in its reporting. But it does not receive a refund, because the company that registered the tax credit becomes a risky counterparty. And the state does not fight it, but simply cancels the refund”, the financial director of Metinvest Group Yulia Dankova says.

Enterprises go to court, but this is not a solution, as the court procedure stretches for years, and the tax authorities may well ignore the court decisions already issued in favour of a particular company.

In 2022, the volume of VAT refunds understandably declined sharply, but starting from January 2023, the average refund was already even higher than before the full-scale invasion. By then, the fiscal revenue situation had improved significantly. In 2024, the decline in VAT refunds was also due to delays in Ukraine’s receipt of external financing.

Why are timely VAT refunds so important? Ukrainian exporting companies are heavily dependent on VAT refunds, as it is part of their working capital, which is always in short supply in war conditions. At the same time, businesses cannot rely on debt financing – bank loans are expensive, and opportunities to raise funds in Western capital markets are extremely limited. In other words, timely and full VAT refund is working capital for business, which it can spend on purchasing raw materials and equipment, paying and increasing salaries of employees, expensive logistics costs when delivering products to foreign markets. That is why Ukrainian business is very dependent on VAT and actively reacts to delays in VAT refunds.

Data on VAT refunds

According to the State Tax Service of Ukraine, VAT refunds in 2024 increased by 19%, or by 24.8 billion UAH – to 157.2 billion UAH. At the same time, claimed amounts for reimbursement increased by 40.5% – to UAH 165.1 billion. Recall that in 2023, reimbursed VAT amounts grew by 56% (UAH 132.4 billion) compared to 2022 (UAH 84.6 billion).

“Since the beginning of the year we already have a positive dynamics. Over the past two months, we have not only exceeded budget revenue targets but have also ensured consistent VAT reimbursements. In January-February we refunded UAH 28.7 billion. We are working on preserving this trend further,” Ruslan Kravchenko, Head of the State Tax Service, claimed.

Risks and problems for iron & steel industry

At the same time, businesses complain to the State Tax Service about unlawful denials of VAT refunds and delays in previous years. Moreover, some exporting iron & steel companies have had their refunds stopped on dubious grounds.

For example, iron ore company Ferrexpo received a notice from the tax authorities to suspend VAT refunds for January 2025 for UAH 513 mln ($12.5 mln). The explanation provided by the tax authorities relates to the imposition of personal sanctions on the company’s shareholder Konstantin Zhevago, but the restrictions do not apply to Ferrexpo, so this reason is wrong.

Centravis, a producer of seamless stainless steel pipes, has been facing long-standing issues with VAT reimbursement, persisting for several years. These challenges significantly hinder the company’s operations, which are already under severe strain due to constant shelling in Nikopol — a city located just seven kilometers from the occupied town of Enerhodar and effectively on the front line.

“The situation with VAT refunds has not changed significantly. The budget reimbursement for transactions with the plant “Dneprospetsstal” for the period from February 2022 to October 2023 remains unconfirmed and unreimbursed to the enterprise. The budget reimbursement from March 2022 to January 2023 and September 2023 confirmed by court decisions are under consideration in cassation. Budgetary reimbursements for February – August 2023 are being appealed to the trial court for the second year. Budget reimbursement for October 2023, confirmed by a court decision of the court of first instance, is under consideration in appeal,” Yuriy Atanasov, CEO of Centravis, told GMK Center in an exclusive commentary.

Meanwhile, VAT refunds to Kryvyi Rih Iron Ore Plant (KZhRK) have been withheld, further exacerbating the company’s already critical situation. In November 2024, the plant appealed to President Volodymyr Zelensky with a request to help stabilize ore sales and refund export VAT in the amount of UAH 150 million. Since then, little has changed. As a result, due to the lack of funding, inability to pay wages in full and power cut-offs for debts, KZhRK has been idle since March 7, 2025.

Previously, other iron & steel companies had problems with VAT as well. According to Yulia Dankova, for Metinvest the amount of VAT refund is comparable to the payroll of its all Ukrainian employees. Following the adoption of the “White Business Club” law in fall 2024, the company was denied VAT reimbursement on the grounds of alleged sanctions—even though none of the group’s entities are subject to such restrictions. The law, which came into effect on October 1, 2024, introduced a framework for maintaining a list of taxpayers with a high level of voluntary compliance. Companies included on this list consistently meet tax obligations and contribute significantly to public revenues, qualifying them for preferential treatment by tax authorities.

In all cases with iron & steel companies, the state refuses to refund VAT on disputable pretexts. The iron & steel sector has suffered the most since 2014 losing significant capacity and production volume. In 2024, despite the losses, steel companies accounted for 7% of Ukraine’s GDP and 15% of its exports, becoming the largest investor in the industry with a total of $650 million. Last year the iron & steel sector’s share in the economy raised, among other things, due to a 55% increase in iron ore production.

Consequences of VAT non-refunding

In 2025, Ukraine is projected to receive $41 billion in external financial assistance, including grants. Combined with domestic revenues—bolstered by inflationary effects—these inflows are expected to be sufficient to meet the government’s budgetary requirements. In addition, VAT refunds for the first quarter of this year increased 30% y/y – to UAH 42.4 bln, which indicates that there are funds available for reimbursement.

At the same time, no Ukrainian business is shielded from the arbitrary and harmful practice of “cutting off the oxygen” to certain companies, as evidenced in the case of Ferrexpo.

“Ferrexpo makes a significant contribution to the Ukrainian economy and society, especially in times of war. The suspension of VAT refunds will put significant pressure on our business, while we are already coping with many other challenges. Ferrexpo calls on the Ministry of Finance and the State Tax Service of Ukraine to take urgent and effective measures to resume VAT reimbursement,” emphasised Lucio Genovese, Ferrexpo’s CEO.

The consequence of this pressure on the company will be a reduction in production and job cuts. Ferrexpo has already been forced to reduce production to 25% of its full capacity, which will lead to a 4 million tonnes of iron ore production reduction in 2025. For comparison, Ferrexpo produced 6.9 million tonnes of iron ore products in 2024 (+66% y/y).

As a result, this will directly cause a reduction of 4 million tons in the freight transport volume by Ukrainian Railways and port transshipment, leading to a decline in foreign currency earnings from the export of these goods and decreasing tax contributions to budgets at all levels. Since February 2022, Ferrexpo has paid more than $300 mln in taxes and rent payments. Ferrexpo’s mining and processing plants are city-forming enterprises.

“We have an external enemy and now more than ever we must be united for the sake of victory and the future. Non-refund of VAT Ferrexpo leads to a decrease in production by the company, a decrease in shipments of our railroads and ports, a decrease in revenue from exports of Ukrainian products, curtailment of investment in our economy and a decrease in the GDP of Ukraine,” the president of Ukrmetallurgprom Oleksandr Kalenkov said.

Oleksandr Kalenkov emphasizes that fiscal authorities must adhere to the law and ensure fair conditions for all businesses, regardless of their size or sector. This includes following transparent procedures and meeting deadlines for VAT refunds, particularly for export-oriented companies. Failing to meet these obligations undermines Ukraine’s competitiveness in global markets, its ability to attract investment, and its economic development.

Access to working capital is crucial for businesses operating in the context of three years of war. While the steel industry continues to persist, its present and future depend not only on global market conditions but also on the Ukrainian state’s sound policy decisions.