Ukraine continues reform path: new EU Enlargement Report confirms progress

“Despite the continuation of Russia’s war of aggression, Ukraine has shown remarkable resilience and commitment to its European path”, – this was highlighted in the new EU Enlargement Report, recently issued by the European Commission. The evaluation is part of the Commission’s second opinion on Ukraine’s EU membership application, published in the Ukraine Report 2024.

The Report indicates that Public Finance Management is well-established and undergoing continuous improvement. The objective of the 2022-2025 Public Finance Management Reform Strategy is to restore medium-term budget planning in 2024. Additionally, the Report highlighted a new budget planning IT tool used to draw up the 2025 budget. This IT system was developed with the support of the EU4PFM Project.

The European Commission has commended Ukraine’s progress in the “Customs Union” Chapter 29, noting a “good level of preparedness” and substantial advances. Three key factors contributed to the positive evaluation. First, Ukraine has made significant progress in aligning its Customs Code with the EU’s, introducing major amendments and beginning work on a new, EU-based code. Secondly, the successful launch in April 2024 of the NCTS Phase 5, supported by EU4PFM marked a major milestone, fulfilling Ukraine’s obligations under the Common Transit Convention. Thirdly, a new law criminalizing large-scale smuggling also contributed to the positive assessment.

Efforts to enhance the use of the common transit procedure included phasing out national simplifications and expanding authorized economic operators (AEO) status to nearly 60 operators. The development of the Customs-Decisions System, the progress towards the development of the new national Customs Clearance System and the Risk Management System based on the EU acquis, MASCP-C and best practices were also positively evaluated. Looking ahead, the European Commission emphasizes the need to implement the new Customs Code, further develop the Strategic Digitalization Plan for 2024-2026, and advance NCTS Phase 6.

The European Union has also noted significant progress in Ukraine’s alignment of its tax regulations with EU standards in Chapter 16. Key areas of advancement include Value Added Tax (VAT), excise duties, and corporate taxation. The National Revenue Strategy for 2024-2030 presents a phased approach to achieving full VAT alignment, emphasizing the need for revising tax incentives and reducing rates.

In the area of corporate taxation, the EU noted Ukraine’s progress is preparing to implement critical components of the EU’s Anti-Tax Avoidance Directive. Ukraine is enhancing its administrative cooperation with EU member states, having already initiated its first automatic exchange of financial account information in 2024. Additionally, the State Tax Service is improving its operational capacity through ongoing IT and human resources reforms, paving the way for compliance with EU standards.

Chapter 5 of the European Commission’s report highlights the need for Ukraine to align its Public Procurement Law with EU Directives. This also includes laws on public-private partnerships and concessions. To address this, Ukraine has adopted a Strategy for Reforming the Public Procurement System for 2024-2026 and a corresponding Action Plan. While the Strategy provides a solid foundation, a clear and structured implementation approach is essential to ensure its success.

Chapter 32 addresses Public Internal Financial Control (PIFC) and emphasizes the establishment of a strategic framework for PIFC under the 2022-2025 PFM Reform Strategy. Furthermore, the European Commission noted the development of the PIFC portal. The EU4PFM Project has contributed to this development by supporting the elaboration of functional and technical requirements. However, as stated in the Report, further efforts are necessary to improve the quality of internal audit and ensure its alignment with international standards.

In the area of External Audit (Chapter 32) EU noted progress in aligning Ukraine’s legal framework for external audits with international standards for supreme audit institutions. The Accounting Chamber of Ukraine (ACU) is working to enhance its political, administrative, and financial independence while extending its mandate to cover all public spending through financial audits.

The Report highlighted that in June 2023, the ACU adopted the International Framework of Professional Pronouncements and established methodologies for compliance and performance audits in line with international standards, marking a significant step forward. Therefore, all three types of audit methodologies are now in place in accordance with ISSAI standards. Progress has been made in monitoring the implementation of audit recommendations and the set-up of a specialised IT tools. These achievements in external audit area were supported by the EU4ACU project.

As of October 2024, Сomponent “External Audit and Parliamentary Oversight” falls under the EU4PFM program, ensuring continued support for these efforts. The EU also encourages future audits to focus on risk and impact assessments, which will be integrated into the ACU’s operational plan for 2025.

The EU4PFM Programme values the long and fruitful journey undertaken together with its Partner Institutions and would like to express gratitude to the Partners for the productive partnership as well as Project’s commitment to providing further comprehensive support towards the EU accession.