Ukraine mulls special regime for arms makers: expert breaks down what could go right — or wrong

Vasyl Badrak, Director of the Center for Army, Conversion and Disarmament Studies and co-founder of the Consortium for Defense Information, shared this on Espreso TV.

The Ukrainian parliament recently received a proposal to amend several laws and create a special legal regime for arms manufacturers. The proposal includes creating a list of Defence City companies, managed by the Ministry of Defense. It also protects information about arms producers and offers tax breaks until January 1, 2036. Current tax benefits will remain, including VAT exemptions, faster depreciation, and perks for employees of relocated companies. The plan also offers exemptions from land, real estate, and environmental taxes.

Vasyl Badrak says the defense industry needs strong lobbying because it has been ignored for too long. But it is still unclear who will decide which companies deserve support and what criteria they will use.

"If Defence City is hidden behind secrecy and closed to public oversight, it could invite manipulation and abuse," the expert warns. "It might turn into a safe haven for 'friends and family' or a group of loyal insiders. Sadly, past cases of illegal wartime profits make such outcomes easy to imagine."

He recalls that during the war, Oleksandr Kamyshin and Herman Smetanin — then heads of the Ministry of Strategic Industries and Ukroboronprom — faced no consequences for failing the mine production program and delivering faulty mines to the military. "We must remember these examples of impunity, often hidden behind secrecy, when judging this new initiative," Badrak said.

Badrak also points out that companies on the Defense Ministry’s Defence City list will be protected from criminal prosecution. He warns this could create a “state within a state,” where a special group becomes untouchable under the excuse of national security — a setup likely to lead to more abuse.

To reduce risks, he suggests limiting concentrated power and reforming the defense industry’s management. He proposes monthly reports to the relevant parliamentary committee and involving independent experts to oversee Defence City and the defense sector. Their work should align with the Verkhovna Rada’s Temporary Investigation Commission, which was created for this purpose.

“The key is to strengthen accountability for Defence City residents, not weaken it,” Badrak says. “Impunity only leads to more impunity.”