Tobacco-Heating Market Slumps After Tax Hike

The market for heated-tobacco products in Ukraine has stopped growing in the wake of a significant tax hike at the start of 2021, reports the Interfax-Ukraine News Agency. According to Philip Morris International’s local director, Kostas Salvaras, sales will likely decline in 2021.

PMI estimates the market grew by 80 percent in 2020. On Jan. 1, 2021, Ukraine increased the excise tax on heated-tobacco products by 320 percent, causing retail prices to jump and sales to slacken. According to PMI data, retail prices on tobacco sticks have increased by an average of UAH13 ($0.49).

According to PMI, the state budget receipts from the sale of heated-tobacco products in the fourth quarter of 2021 will decrease by 60 percent to 70 percent compared to the same period in 2020. The company intends to reduce the purchase of excise duty stamps for heated-tobacco products by nearly 67 percent in the quarter.

Meanwhile, PMI has already observed an increase in heated-tobacco products smuggled from neighboring countries where prices are lower.

Salvaras estimates that illicit sales now account for 15.9 percent of the Ukrainian tobacco market compared with 2.3 percent in 2017. Given the current level of illegal trade, the state will receive less than UAH13.2 billion in tax receipts in 2021, he said.

PMI has urged the Ukrainian parliament to reconsider plans to further raise excise taxes and delay the next jump in prices for heated-tobacco products.

“This is a necessary step that will allow consumers and businesses to ‘digest’ the 320 percent increase and adapt to new conditions,” said Salvaras. “It will also stimulate the attraction of additional investments in this area, which is important both for the country’s economy and for public health—after all, the authorities should be interested in motivating smokers to look for a less harmful alternative to cigarettes.”