The IMF has urged Ukraine to phase out its windfall tax on bank profits after 2027, warning that repeated use of the measure could distort the financial sector and weaken banks' ability to support economic recovery and post-war reconstruction, reported Ukraine Business News.

In a report, the IMF said Ukraine's Budget Declaration for 2027-2029 includes revenue expected from a tax on excess bank profits in 2027, reflecting draft legislation currently under consideration in parliament that would impose a 50% tax rate on banks' profits.

If approved, the measure would mark the fourth time Ukraine has introduced a windfall tax on the banking sector, the Fund said.

The IMF acknowledged that the tax could provide additional budget revenue in 2027, helping the government finance spending during wartime. However, it cautioned that repeated reliance on temporary profit taxes risks creating long-term distortions in the financial system.

"After 2027, the windfall tax on bank profits should be phased out in favour of higher-quality, permanent measures in line with the government's agenda," the IMF said.

According to the Fund, repeated use of the tax encourages banks to adjust their behaviour to minimise tax liabilities while limiting their ability to accumulate capital through retained earnings.

The IMF said Ukraine's banking sector remains stable, liquid and profitable despite more than three years of Russia's full-scale invasion. Strong profitability has helped financial institutions withstand wartime shocks and maintain confidence in the banking system.

However, the Fund warned that preserving banks' capital buffers will become increasingly important as Ukraine moves from wartime stabilisation towards economic recovery.

Well-capitalised banks will be expected to expand lending to businesses and households, support private-sector investment and help finance the country's eventual reconstruction, all of which require a strong capital base.

The IMF said repeated taxation of excess profits could undermine that objective by reducing the resources available for banks to strengthen their balance sheets.