VALUE ADDED TAX IN UKRAINE: ECONOMIC ESSENCE, FEATURES OF FUNCTIONING AND IMPACT ON BUSINESS DEVELOPMENT

Abstract

The article provides a comprehensive analysis of the value added tax (VAT) from the perspectives of classical economic theory, normative regulation, and practical application in Ukraine. It is established that during the introduction and functioning of VAT, a transformation of fundamental economic definitions occurs, particularly the concept of gross income, which leads to a logical gap between the classical theoretical model of the tax and the conditions of its actual implementation. It is demonstrated that the normative design of VAT, as enshrined in the Tax Code of Ukraine, institutionalizes this definitional shift and further develops it through specific mechanisms of tax collection, including import taxation and the determination of the tax base. The practical aspects of VAT functioning in Ukraine are analyzed, including the application of differentiated tax rates, institutional mechanisms of tax administration, and the use of non-formal indicative control instruments such as the “VAT tax burden” indicator. It is substantiated that these practices effectively substitute the taxation of value added with turnover taxation, resulting in the loss of tax neutrality, a direct impact on corporate profits, and a transformation of the role of economic entities within the VAT mechanism. Special attention is given to the analysis of potential economic consequences of introducing value added tax for individual entrepreneurs operating under the simplified taxation system. It is demonstrated that the mechanical extension of the existing VAT mechanism to the activities of sole proprietors may lead to increased business costs, inflationary effects, higher administrative burdens, and a reduction in business activity within the small enterprise sector. The results obtained confirm the necessity of a scientifically grounded approach to any potential expansion of VAT application, taking into account its economic logic and institutional characteristics. In this context, the analysis of the process of expanding the scope of VAT application contributes to a deeper theoretical understanding of the economic nature of value added tax and provides a basis for a more accurate assessment of the feasibility of extending VAT to the simplified taxation system.