By Stanislav Romaniuk

In my first article for the Society of European Future I have introduced Salus, a taxation reform proposal designed by Dmytro Romaniuk and myself. Salus offers to radically reform an existing taxation system by abolition of existing taxes and establishment of the Universal Levy. The whole new system of tax collection will be introduced – the bank collects a fixed rate of the Universal Levy from funds received into a current account. The mechanism will be explored in more details throughout this essay. 

Although Salus may be adapted and fully suitable for many countries across the globe, for the purposes of the essay I will specifically look at Ukraine and how Salus may be implemented there. Since it was originally designed for the Ukrainian economy, it is only fair if we use this country as a prime example. 

In order to make it easier for a reader to fully understand the story and necessity of the reform, I will introduce the Ukrainian context and will have a look at the existing structure of the taxation system and its problems. Only after doing so will I introduce Salus in more detail and argue why the reform should be implemented now.

Reform in the Midst of War

During World War II Franklin D. Roosevelt argued that crises provided the political will and public support necessary to implement sweeping reforms. Ukraine is the perfect example to support that statement, over the last 3 years Ukraine has become a global symbol of resilience and innovation. From digital mobilisation systems to the use of drones and AI, Ukraine has repeatedly shown that necessity can be the engine of modernisation.

The same trend must now reach the economy. The war has exposed the fragility of Ukraine’s fiscal system: a structure too complex, too bureaucratic, and too dependent on outdated mechanisms of collection and control. The inefficiency of the existing system has made Ukraine dependent on Western allies whose continuous economic help is the only reason the Ukrainian economy is still breathing. 

Salus is a proposal to change that. It is not utopian theory, but practical redesign of taxation for the digital age. The one that could make Ukraine the first country in the world to operate a fully automated, transparent, and low-cost model. 

The core idea is simple: instead of taxing income, profit, or value added, the state collects a small percentage from every financial transaction at the moment it occurs. Banks handle collections automatically. Citizens and businesses no longer file declarations or undergo audits. Compliance becomes invisible, evasion impossible, and fiscal transparency total. It will also attract foreign investors that are keen to invest into Ukraine even during the war, but the complexity of the taxation system usually stops them. 

At a time when Ukraine must finance both defence and recovery, this system could stabilise revenue flows, rebuild trust between citizens and government, and prove that even in war, Ukraine can lead in innovation. 

A Tax System Out of Step with Modern Reality

Ukraine’s current tax framework is a patchwork of more than a dozen levies: corporate, personal income, VAT, custom duties, military contributions, and numerous local taxes. Each comes with separate reporting requirements, compliance deadlines, and bureaucratic oversight. The result is predictable – high administrative costs, widespread evasion, and deep mistrust. 

The Chairman of the Finance Committee of the Verkhovna Rada, Danylo Hetmantsev, in a comment to Forbes noted that Ukraine’s shadow economy accounts for 30-50% of GDP, with some spheres reaching over 60% of GDP. Small and medium enterprises often operate informally, not out of malice, but because the cost of compliance exceeds the benefit of legality. Businesses spend weeks on reporting and audits; citizens fear arbitrary inspections; and government agencies waste resources enforcing rules that few understand and even fewer respect.

In wartime, these inefficiencies become critical vulnerabilities. Every lost hryvnia (800-900 billion UAH per year according to Mr. Hetmantsev) in tax revenue is a lost opportunity to fund the army, support displaced citizens, or rebuild energy infrastructure. Yet traditional methods of tightening enforcement (more audits, higher penalties, or stricter control) only deepen the problem, driving economic activity further into the shadows. 

Moreover, Ukraine’s tax system remains poorly adapted to its rapidly digitising economy. Despite the fact that most of the service payments and purchases already pass through electronic systems, tax collections still depend on self-reporting and manual verification. This gap between digital behaviour and analogue regulations creates room for corruption, manipulation and inefficiency. 

In short, Ukraine’s fiscal model was designed for the 20th century, a time of paper declarations, physical audits, and limited data. It cannot sustain the scale, speed, and transparency demanded by a 21st century economy at war.

The Salus Model Unpacked

In a war time environment, the luxury of “we will reform later” has vanished. Fiscal systems must now perform under fire, deliver rapid results, and command credibility, all while the economy continues to operate in a digital, accelerated mode. That is precisely what Salus is designed to do. 

Core Mechanism 

At its heart, Salus replaces the fragmented tax architecture (income tax, corporate tax, VAT, local levies) with one unified system: a small, flat tax applied automatically to incoming financial transactions. Each time money enters a bank or financial account, a predetermined fraction (authors propose 5-10%) is transferred instantly to the state. No declarations, no separate returns, no multiple thresholds and exemptions.

Banks and financial institutions act as collection agents: once the money arrives, the tax is triggered and remitted almost instantaneously. The administrative machinery is minimal. Audit trails, compliance checks, reporting, specialised tax officers shrink or vanish. What remains is a transparent digital stream: money in -> tax transferred -> budget credited. 

Regarding the Bank’s fee for tax administration, after the end of the budget period, authors of the project propose 0,5% of the amount of taxes collected by the bank is transferred to the Bank’s account from the Budget, which is the state’s expenses for the administrative and collection of taxes by banks. 

However, not all transactions should be taxed equally. To avoid double taxation and encourage investment, Salus model introduces a “zero tax zone” – a set of clearly defined, exempt transactions that sustain financial stability and long-term economic growth.

• Intra-personal transfers. Transactions between accounts belonging to the same person or legal entity (for example, transferring money from a current account to a savings account, or between company sub-accounts) are assigned zero tax rate. This prevents redundant taxation and ensures liquidity within households and businesses. 
• Investment Funds. Funds in the form of direct investments are not subject to the Universal Levy (zero tax rate). The goal is to reward capital formation, attract investments into the country and ensure that long-term investments, which power innovation and job creation, are not penalised by constant micro-taxation.

These zero tax rate categories are narrow and precisely defined to avoid abuse but wide enough to ensure that legitimate economic behaviour (saving and investing) is fully supported.

In practice, the system operates like a digital gatekeeper: the tax is automatically triggered only when a transaction falls outside the exempt list. The parameters are hard-coded into the financial network, leaving little room for manipulation while keeping compliance effortless.

Economic Rationale for Zero Tax Zones

Including a zero tax rate structure strengthens Salus in three ways: 

1. Prevents cascading taxation. Without exemptions funds could be taxed multiple times as they circulate within a company or household. Zero tax rate zones keep the model fair and efficient.
2. Stimulates investment. Investors, startups, and funds gain incentive to keep capital within the formal system instead of offshoring or resorting to shadow mechanisms.
3. Preserve liquidity. Individuals and firms can move money between accounts freely without friction, keeping domestic capital active and accessible. 

Why Salus Works During War

1. Continuous revenue flow. In war time revenue interruptions are costly. The automated nature of Salus ensures that as long as transactions occur (and they are occurring – 95.3% of card-based transactions in Ukraine are cashless, according to NBU data) the tax system keeps functioning in real time.
2. Reduced fiscal drag and avoidance. Traditional tax systems often suffer during war: enforcement weakens, compliance drops, shadow economy rises. Salus leaves less space for evasion because the tax collects at source. Every country in the world has to chase taxpayers, whereas Ukraine under Salus will simply collect when money moves. 
3. Low administrative cost and speed. Wartime means attention must focus on security, logistics, and reconstruction, not tax bureaucracy. Salus minimises overhead, redirecting resources from tax enforcement to strategic tasks (defence, infrastructure, social support). 
4. Trust through transparency. For citizens under siege, trust in the state is a strategic asset. With Salus, every transaction is visible in aggregate (and potentially in dashboard form for public view). That transparency strengthens the social contract – “I pay my tax; I see how it’s used”. 
5. Digital economy alignment. Ukraine is already highly digital: NBU reports show that in the first six months of 2025, 275 million payments went through the electronic payment system worth nearly 141 trillion UAH. With this infrastructure in place, it is practical to use digital backbone for tax collection.

Technical and Operational Features 

• Flat rate design. One rate for all qualifying transactions simplifies the system. Complexity breeds loopholes; simplicity clothes them.
• Automatic collection at entry point. Instead of taxing output (sales) or profit, Salus taxes all inflows. This means business receipts, wages, transfers – all contribute. 
• Minimal substitution of existing infrastructure. The banking and payment network (cards, bank accounts, transfers) already exist and run even in wartime. Salus taps into this infrastructure rather than building a new parallel system.
• Real-time dashboards and public reporting. The state publishes how much revenue is collected, how it is allocated, and project progress. Citizens and businesses monitor in real time reinforcing accountability. 
• Surplus reinvestment model. Given the lower cost of collection and estimated increase in government revenue, the state aims not to live in debt but produce surplus revenue. That surplus is reinvested into technology, research, defence and/or infrastructure, building capacity rather than borrowing. 

Why This Reform is Feasible Now in Ukraine

• High penetration of digital payments. With near universal card usage and contactless payments (over 95% of the number of transactions), the electorate and economy have already adopted digital forms. This makes conversion easier.
• Political will under duress. War has a clarifying effect – the need for reform is visible, public tolerance for change is higher, and the state’s legitimacy is both challenged and reinforced. This moment offers political space for bold moves. 
• Need for faster revenue and reconstruction. The wartime economy demands agile budgets, fast infrastructure repair, and minimal leakages. Salus addresses all three. 
• International interest and support environment. Ukraine’s reform initiatives are under global scrutiny; a model like Salus could attract donor confidence, conditional financing, and private investment by signalling a modern fiscal regime.

Anticipated Outcomes

• Higher real revenue collection because the compliance gap and shadow economy shrink. Estimated government revenue in Ukraine in 2024 under Salus would have been 10,5 trillion UAH compared to 3,2 trillion UAH collected by the Ukrainian government, 1,5 trillion UAH of which were grants and loans from Western allies.
• Increased formalisation of economic activity as the ease of compliance rises and the return on being legal improves.
• A simplified, low-cost tax system with fewer exemptions and minimal bureaucracy.
• Improved fiscal resilience: The state can rebuild, invest and defend without resorting to large foreign debt.
• Enhanced citizen-state trust: through visible, accounting budgeting.
• Positioning Ukraine as a global leader in digital statecraft, not just on the battlefield but in state management. 

Comparative Insight

Tax systems around the world vary widely in structure and philosophy, yet nearly all of them share one fundamental weakness: they rely on manual compliance and bureaucratic enforcement. Whether progressive or flat, direct or indirect, every modern taxation model assumes that citizens and companies must report, file, and calculate their own obligations. Such a system inevitably breeds inefficiency, corruption, and evasion. 

By contrast, Salus belongs to a new generation of fiscal design. The one that merges automation, transparency, and real-time data flow into a unified digital system. To understand its value, it is worth comparing it with three dominant global models.

1. Progressive Income Tax (United States, Western Europe)

Most Western economies operate under progressive income taxation, where rates rise with income levels. In theory, this promotes fairness and redistribution. In practice, however, it generates immense administrative complexity: annual declarations, deductions, audits, and an entire industry of accountants and lawyers devoted to navigating loopholes.

Compliance costs in OECD countries average 1-2% of turnover according to the European Parliament report, while tax evasion and avoidance collectively drain hundreds of billions annually. Moreover, high-income individuals and corporations often relocate wealth through offshore structures, rendering the system both inequitable and inefficient. 

Salus eliminates this layer of complexity. Because collection occurs automatically at the transaction level, there is no space for loopholes, deferrals, or manipulation. Administrative costs shrink, and tax fairness is achieved not by punishing wealth creation but by applying one transparent rule to all financial flows.

2. Consumption Based Systems (Value Added Tax)

VAT, the cornerstone of the EU tax model, is theoretically efficient – a broad-based tax on value added at each stage of production. In reality, it suffers from chronic fraud, refund abuse, and administrative drag.

In 2022 alone, EU member states lost an estimated 89 billion EUR due to VAT evasion and fraud (“VAT Gap”, European Commission). The system also disproportionately burdens small and medium enterprises that lack the resources to manage complex reporting. 

Under Salus, every transaction is a tax event. There are no refunds, input credits, or invoice chains to manipulate. Because the tax is collected in real time by financial institutions, fraud becomes nearly impossible, and SMEs operate on equal footing with large corporations. 

3. Flat or Transaction Taxes (Brazil’s CPMF, India’s UPI Tax Experiments)

Some countries have tested simplified transaction taxes before, with Brazil’s CPMF (1997-2007) being the most notable. While initially successful in generating revenue, these systems failed due to design flaws: excessively high rates (0.38% per side, applied to both sender and receiver), lack of exemptions, and parallel retention of traditional taxes.

Salus learns from those mistakes. It is built on one flat, low-rate principle, typically 5-10% per incoming transaction, applied once, not twice. It also incorporates zero-rate zones for intra-personal transfers and investments, preventing the cascading effect that doomed Brazil’s system. By simplifying structure and eliminating duplication, Salus avoids distortion and keeps the economy competitive. 

Challenges and Implementation Steps

Introducing Salus would mark one of the most ambitious fiscal transformations in modern history. While the model offers exceptional advantages, its success depends on careful sequencing, institutional capacity, and political will. Reform at this scale is not achieved by decree, it requires trust, infrastructure, and coordination. 

Below are the key challenges that Ukraine would need to anticipate, and the steps that could make the implementation of Salus both feasible and sustainable. 

1. Legal and Institutional Transition

Ukraine’s current tax code spans thousands of pages, built on decades of amendments, loopholes, and exceptions. Transitioning to a single, automated transaction tax would require comprehensive legislative reform, including revisions of the fiscal oversight laws, complete abolition of the existing Tax Code and the establishment of the new one. For instance, the provisional Tax Code written by the Salus Team consists of only 40 pages.

A legal transition period would likely be necessary to define exemption categories ( the “zero rate zones”), and establish clear data-sharing protocols between financial institutions and the Ministry of Finance. 

During this stage Ukraine should create a National Fiscal Reform Task Force, bringing together the Salus team, representatives from the government, Parliament, and banking sector. The goal is to build a unified regulatory framework that ensures interoperability between Salus and existing financial systems.  

2. Banking and Technological Infrastructure

While Ukraine’s banking system is one of the most digitalised in Eastern Europe, thanks to innovations like Diia, Monobank, and the rapid spread of cashless payments, full-scale implementation of Salus would still require major infrastructure adjustments.

Each licensed financial institution would need to integrate an automatic deduction mechanism into its transaction processing system. This mechanism would identify taxable transactions, apply the rate, and transmit data to the national budget system in real time. The integration of the deduction mechanism does not require significant investments from financial institutions due to its low-cost implementation. 

To guarantee resilience during wartime and cyberattacks, Ukraine should develop redundant, decentralised data storage, ensuring fiscal operations remain functional even in case of power outages or partial network failures. The National Bank of Ukraine could play a central role in supervising this transition, ensuring interoperability between public and private digital systems. 

3. Gradual Phase-Out of Existing Taxes

A sudden replacement of all existing taxes with Salus would be politically and economically risky. Instead, Ukraine should adopt a dual-track approach: 

• Phase 1 (Pilot) – Implement Salus in selected sectors, such as IT, fintech, or small business, where transactions are already digitalised and compliance is high.
• Phase 2 (Expansion) – Gradually integrate the system into retail banking, trade, and service sectors, while proportionally lowering existing income and VAT rates.
• Phase 3 (Full Transition) – Once transaction coverage reaches 80-90% of GDP and revenue stability is proven, phase out the traditional tax code entirely. 

This gradual integration would give both the state and private sector time to adapt, monitor performance, and make technical corrections before full rollout.

4. Public Communication and Trust

No fiscal reform can succeed without public trust. For citizens, Salus must be communicated not as another reform, but as a social contract renewal – a model that ends arbitrary taxation, closes loopholes for the powerful, and rewards transparency.

Ukraine’s government could launch a national information campaign, illustrating in simple terms how every hryvnia collected is used. Public dashboards, gamified civic platforms, and open data portals could transform tax participation into an act of civic pride rather than obligation.

Conclusion and Policy Implications 

The authors of the project realise that Salus only will not solve all the problems in Ukraine, however it gives the people the necessary resources and a system within which the Ukrainian economy has an opportunity for development and growth. Rebuilding Ukraine requires more than reconstruction, it demands reinvention. The war has revealed both the country’s extraordinary capacity for innovation and the limits of its inherited governance structures. Fiscal reform lies at the centre of this transformation. Without a transparent, efficient, and sustainable tax system, no recovery plan can endure. 

Salus offers precisely that – a 21st century fiscal architecture built for speed, trust, and digital integration. It does not aim to modernise bureaucracy, it replaces it. By automating tax collection, eliminating human intermediaries, and embedding fiscal transparency directly into the flow of money, Salus transforms taxation from an instrument of control into a tool of empowerment. 

Unlike traditional reforms, which tweak rates or close loopholes, Salus changes the underlying logic of the state. It treats taxation as a network function, not an administrative act, as automatic as sending a message, as traceable as a blockchain ledger, and as fair as a flat rule that applies equally to all. 

Economic and Political Implications

When implemented successfully, Salus will:

• Stabilise revenue during war, ensuring uninterrupted funding for defence and essential services.
• Accelerate post-war recovery by freeing businesses and citizens from bureaucratic friction.
• Rebuild public trust, as every taxpayer sees where their contribution goes and how it serves the collective good.
• Set a global precedent, positioning Ukraine as a testbed for next-generation governance in the digital era.

This reform also carries strategic geopolitical weight. A functioning Salus system would make Ukraine a model for transparent governance in a region long plagued by corruption and opacity. It could attract foreign investment, strengthen the country’s integration with the EU’s digital single market, and elevate Ukraine’s role as an innovator in institutional design rather than merely a recipient of aid.

The Moment of Opportunity

Most governments resist structural reform because they fear instability. Ukraine, paradoxically, has the opposite condition: instability has already arrived. The existing fiscal model is stretched to its limits. The country has nothing to lose by experimenting, and everything to gain by leading.

Wars have historically accelerated state transformation. The United States introduced the income tax during the Civil War. Europe built the welfare state after World War II. Ukraine, facing its own existing struggle, has the chance to pioneer the world’s first fully digital, self-regulating tax system – one that can sustain both sovereignty and growth.

A New Fiscal Philosophy

At its core, Salus is not merely a tax reform; it is a philosophy of governance. It assumes that when citizens are treated as partners rather than subjects, compliance follows naturally. It assumes that simplicity is the highest form of efficiency. And it assumes that technology, when aligned with ethics, can rebuild trust faster than laws.

Ukraine’s strength throughout this war has been its capacity to innovate under pressure, to turn necessity into invention. The fiscal realm should be no exception. By embracing Salus, Ukraine would not only ensure its financial survival but also redefine how a modern state earns the trust of its people.    

The world will watch Ukraine’s reconstruction.

But if Ukraine adopts Salus, the world may end up studying something even more significant: how a nation under siege reinvented the very concept of taxation, and in doing so, designed a blueprint for the governance of the future.