Zhavoronok Artur, Ph.D. in Economics, Associate Professor, Associate Professor of the Department of Business, Administration and Law, Higher Educational Institution “University of Future Transformation”, Chernihiv, Ukraine

ORCID: 0000-0001-9274-8240
e-mail: a.zhavoronok@chnu.edu.ua

Tax Incentives as Tools for Economic Development: Theory and Practice

Abstract. Introduction. The article examines the role of tax incentives as an important instrument of state policy for economic development under martial law and during the post-war recovery of Ukraine. The relevance of the topic is driven by the need to identify effective mechanisms for stimulating investment and innovation activities, rebuilding destroyed infrastructure, and ensuring sustainable economic growth under conditions of limited budgetary resources.

Purpose. The purpose of the article is to provide a comprehensive study of the essence, types, and mechanisms of tax incentives, to analyze the practice of their application in Ukraine, and to develop recommendations for improving the system of tax stimulation.

Results. The paper considers theoretical approaches of domestic and foreign scholars to defining the nature of tax incentives. It analyzes the main tax preferences currently in force in Ukraine, including the special tax regime Diia.City, incentives for residents of industrial parks, the simplified taxation system (single tax), specific features of the taxation of insurance companies, preferential excise tax rates, as well as a broad system of value-added tax (VAT) exemptions (0% rate) on imports of energy equipment, military goods, and equipment for industrial parks. Particular attention is paid to wartime tax benefits that remain in effect in 2026, including exemptions from the single tax for individual entrepreneurs operating in combat zones and temporarily occupied territories, as well as for mobilized entrepreneurs. The study evaluates the stimulating effect of these instruments on the development of the IT sector, manufacturing industry, energy sector, defense industry, and small business.

Conclusions. The results indicate that the existing system of tax incentives has significant potential but is characterized by fragmentation, insufficient targeting, and weak mechanisms for evaluating effectiveness. The article substantiates the need to shift from reactive anti-crisis tax benefits to a comprehensive, targeted, and performance-oriented system of tax incentives that would take into account the strategic priorities of Ukraine’s economic development.

Keywords: tax incentives, tax policy, tax administration, tax benefits, governance, economic development, Diia.City, industrial parks, VAT exemptions, wartime tax preferences.

References:

1. Braslavets, O., Maslyanka, P., & Omelchenko, A. (2025). Tax incentives as a tool for the development of entrepreneurship and economic activity in the conditions of economic transformation. Actual Problems of Economics, 2(294), 112–119. DOI: 10.32752/1993-6788-2025-2-294-112-119 [in Ukrainian].
2. Dudash, M. H. (2024). Reduction of tax burden as a mechanism of tax stimulation of entrepreneurship development in rural areas under martial law. Electronic scientific publication “Analytical and Comparative Jurisprudence”, 5. DOI: https://doi.org/10.24144/2788-6018.2024.05.63 [in Ukrainian]. 
3. Chaplyhin, O., & Chaplyhina, M. (2024). Tax stimulation of energy efficiency as a component of the state’s financial policy. Sustainable Economic Development, 2(49), 5–9. DOI: https://doi.org/10.32782/2308-1988/2024-49-1 [in Ukrainian].
4. Ivanchenkov, V. S. (2025). Tax instruments in ensuring structural transformations of the economy. Economic Space, 200, 174–178. https://doi.org/10.30838/EP.200.174-178 [in Ukrainian]. 
5. Hretsa, Ya. V. (2025). Tax benefits as an instrument of applying the regulatory function of taxes. Scientific Bulletin of Uzhhorod National University. Series: Law, 92. DOI: https://doi.org/10.24144/2307-3322.2025.92.3.14 [in Ukrainian].
6. Naidenko, O. Ye. (2024). Tax incentives for investment activity of legal entities: experience of EU countries and Ukrainian realities. Finance of Ukraine, 9, 99–114. DOI: https://doi.org/10.33763/finukr2024.09.099 [in Ukrainian]. 
7. Nikitishyn, A., & Pasichnyi, M. (2022). Tax stimulation of innovation activity. Modern Engineering and Innovative Technologies, 2(21-02), 36–39. https://doi.org/10.30890/2567-5273.2022-21-02-014 [in English].
8. Zeldina, O., & Hryshko, V. (2017). Tax incentives as a component of fair taxation. Legal Regulation of Economy, 10, 67–78. https://pgp-journal.kiev.ua/archive/2017/10/14.pdf [in Ukrainian].
9. Shaptala, Ye. Yu. (2017). Stimuli in tax law: concept, features and classification. Actual Problems of Law, 10. URL: https://apir.org.ua/lais/article/download/188/169 [in Ukrainian].
10. Tax Code of Ukraine of December 2, 2010 No. 2755-VI. URL: https://zakon.rada.gov.ua/laws/show/2755-17#Text [in Ukrainian].
11. On Amendments to the Tax Code of Ukraine and Other Legislative Acts of Ukraine regarding the Operation of Norms during the Period of Martial Law: Law of Ukraine of March 15, 2022 No. 2120-IX. URL: https://zakon.rada.gov.ua/laws/show/2120-20#Text [in Ukrainian]. 
12. On Amendments to Section XX “Transitional Provisions” of the Tax Code of Ukraine regarding Excise Tax Rates during the Period of Martial Law and State of Emergency: Law of Ukraine of September 21, 2022 No. 2618-IX. URL: https://zakon.rada.gov.ua/laws/show/2618-20#Text [in Ukrainian].
13. On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine regarding Peculiarities of Taxation of Banks with Corporate Profit Tax in 2026 and Postponement of the Launch of the Electronic System for the Circulation of Alcoholic Beverages, Tobacco Products and Liquids Used in Electronic Cigarettes: Law of Ukraine of December 3, 2025 No. 4698-IX. URL: https://zakon.rada.gov.ua/laws/show/4698-20#Text [in Ukrainian].
14. Abramova, A., Shaposhnykov, K., Zhavoronok, A., Liutikov, P., Skvirskyi, I. & Lukashev, O. (2021). Ecosystem of VAT Administration in E-Commerce: Case of the Eastern Europe Countries. Estudios de economía aplicada, 39(5). DOI: http://dx.doi.org/10.25115/eea.v39i5.4909 [in English].
15. Danylyshyn, B., Dubyna, M., Zabashtanskyi, M., Ostrovska, N., Blishchuk, K., & Kozak, I. (2021). Innovative Instruments of Monetary and Fiscal Policy. Universal Journal of Accounting and Finance, 9(6), 1213-1221. https://doi.org/10.13189/ujaf.2021.090601 [in English].
16. Lagodiienko, N., Pozhydaieva, М. & Krylov, D. (2022). Digitalization of Tax Administration in Ukraine: Risks and Opportunities. Management Theory and Studies for Rural Business and Infrastructure Development, 44(4), 443–450. DOI: https://doi.org/10.15544/mts.2022.44 [in English].
17. Nikiforov, P., Greshko, R., Marych, M., Marusiak, N., Kharabara, V. & Gladchuk, O. (2022). Mutual Influence Of Fiscal And Monetary Policy In The Context Of Ensuring Macro-Financial Stability Of The State. Management Theory and Studies for Rural Business and Infrastructure Development, 44(4), 435–442. DOI: https://doi.org/10.15544/mts.2022.43 [in English].
18. Zhavoronok, A., Popelo, O. & Cosmulese, C. G. (2026). Coordination of fiscal and monetary policies in ensuring macroeconomic stability of Ukraine. Financial and Credit Systems: Prospects for Development, 1(20), 161-172. DOI: https://doi.org/10.26565/2786-4995-2026-1-12