A 20% VAT on electric vehicles, introduced in January, unexpectedly swept up Ukraine’s uncrewed ground vehicles—ground drones needed on the front lines—forcing procurement delays, collapsing contracts for months, and nearly pushing manufacturers toward failure
By the time Ukraine’s military procurement teams tried to buy more ground drones at the start of the year, the paperwork had already gone sideways.
A 20% value-added tax—introduced in January—treated Ukraine’s uncrewed ground vehicles like electric vehicles. That mismatch, the CEO of the Ukrainian Council for Defense Industry, Ihor Fedirko, says, didn’t just add cost. It disrupted supply chains, dried up state contracts for months, and left frontline manufacturers scrambling just to stay alive.
“The new tax also threw the local ground drone industry and military into disarray at the start of the year, causing contracts to dry up for months and several major manufacturers to nearly go out of business,” Fedirko said.
He described the scale of what the military lost under the VAT’s logic: if the 20% VAT had not been introduced. Ukraine’s military could likely have bought 5. 000 more uncrewed ground vehicles in the first half of 2026. “We know that our government is procuring 25,000 in the first half of this year. If they could procure 20% more, that’s 5,000,” Fedirko told Business Insider. “For our armed forces, that’s a lot.”.
Ukrainian lawmakers are now racing to reverse the damage. A bill introduced on May 19 by Nina Yuzhanina. a lawmaker for Ukraine’s European Solidarity party. and 44 other parliamentarians would redefine UGVs as a separate good—exempting them from the 20% VAT—because they had been lumped together with EVs under Ukraine’s trade standards.
The measure is scheduled for discussion over the next two weeks. Fedirko estimates that even if the law passes immediately, it would still take about two months for effects to fully trickle down and restore production.
That timing matters because the defense ministry has said it plans to buy a total of 50,000 ground drones by the end of the year.
UGVs vary widely in price. Ukrainian UGVs can cost between $5,000 to $100,000 apiece, depending on the type of system and the gear it’s equipped with.
Fedirko argued the tax relief would translate into real money for the industry. “The exemption would save more than eight to 10 billion hryvnias, which is about $200 million,” he said. “For us, it’s a huge number.”
The policy’s origin was not meant for warfare. Under martial law, most of Ukraine’s war industries aren’t subject to such taxes. But this year’s VAT on ground drones was unusual because Ukraine had been exempting EV duties since 2018, and that exemption expired on January 1.
The confusion, Fedirko said, came from how defense procurement is usually handled. Defense equipment and weapons are exempt from VAT by default, yet procurers initially struggled to navigate the new process when ground drones were classified alongside EVs.
Amid the turmoil, drone makers couldn’t find state contracts—the “lifeblood for major manufacturers.” Fedirko said contracts were missing for three months.
“Three months without procurement, that’s crazy. It’s impossible to live without it,” he said.
The disruption quickly moved beyond balance sheets. Firms faced weeks of bureaucratic delay, looping in state tax services and documenting the procurement process meticulously—an administrative burden that lands differently when the country is at war.
Fedirko said some firms may have had to drop capacity to a third of last year’s levels to stay solvent. with cuts to employees or engineers. He added that some manufacturers tried to reclassify their drones as tanks or armored vehicles. Others sold their UGVs to volunteer organizations such as ComeBackAlive, which supplies military units on an ad hoc basis.
Tencore, the manufacturer of the tracked TerMIT drone, said it had to rely on these volunteer organizations when it couldn’t find state contracts for five months.
“For UGV manufacturers, the VAT issue was not an accounting detail,” Tencore told Business Insider. The company works with the Ukrainian Robotics Force association, which falls under Fedirko’s UCDI umbrella.
As the bottleneck tightened, Ukraine’s defense ministry said in April that it was working quickly to “unblock” contracts and speed up deliveries.
Even so, the delays had consequences on the ground. Fedirko said that because military ground drones were so new. lawmakers struggled to define them properly. and that European Union commodity rules—on which Ukraine bases its own goods classifications—also lacked clear specifications for these uncrewed systems.
Through all of it, the defense ministry chose not to comment on the parliamentary bill itself when reached by Business Insider, saying it’s not allowed to influence the bill’s consideration or debate.
Still, the ministry did lay out how large the industry has grown. It said Ukraine’s UGV industry has so far grown to over 280 companies, with 550 types of drones for sale.
Ukraine’s troops are increasingly relying on these platforms as the war moves into its fifth year. They are used for logistics, evacuations, and attacks on Russian positions. Ukrainian President Volodymyr Zelenskyy said in April that his forces had used ground drones to carry out over 22. 000 missions in the first three months of 2026 alone.
Yuzhanina described the damage in her statement last week, saying the EV tax “almost ceased” the supply of ground drones to the military in some areas.
A fix was hard to arrive at quickly—not because lawmakers lacked urgency, but because the underlying categories were wrong. Ground drones were new enough that defining them consistently across standards took time. and the first months of the year forced procurement and manufacturers to operate under a tax framework they say wasn’t built for war technology.
Now, with the May 19 bill on track for discussion, Ukraine is trying to unwind a cost and classification decision that the industry says turned into frontline delays.
Whether the new legal definition can restore production fast enough is the central question as lawmakers prepare to debate it—while the defense ministry continues planning to buy 50,000 ground drones by the end of the year.
Ukraine VAT electric vehicle tax ground drones uncrewed ground vehicles UGV defense industry Ihor Fedirko Ukrainian Council for Defense Industry Nina Yuzhanina European Solidarity Ukrainian defense ministry Tencore TerMIT ComeBackAlive martial law procurement legislation