Ukraine: Activists Decry PMI’s tax privileges

Activists are urging the Ukrainian government to crack down on international companies still operating in Russia following reports on Philip Morris International’s preferential tax treatment, according to Eureporter.

Despite being labeled as an “international sponsor of the war,” PMI continues to enjoy a discounted tax rate in Ukraine.  

After Russia invaded Ukraine in February 2022, many international tobacco companies, including PMI, announced they would retreat from Russia or substantially scale down their operations. In early 2023, however, PMI CEO Jacek Olczak told the Financial Times that negotiations had stalled as the company does not want to sell the business on unfavorable terms for its shareholders.

Since the start of the war, Russia has made it exceedingly difficult for foreign investors to exit the market without taking a significant financial hit. Among other provisions, the government reserves the right to dictate the valuation of foreign companies’ Russian assets as well as the new owners’ dividend and access to cash flow.

PMI’s revenue in Russia increased to RUR399.9 billion ($4.33 billion) in 2023 from RUR359.53 billion in 2021, the last fiscal year before the war. The company is among the five largest foreign taxpayers in Russia.

PMI’s continued presence in Russia prompted Ukraine to designate the company as a war sponsor.

Despite such considerations, Ukraine levies an ad valorem tax rate of only 12 percent on PMI products—a level that critics say has caused its cash-strapped government to miss out on some UAH100 billion ($2.55 billion) in tax revenues over the decade that the discount has been in place.

Activists have called on Ukraine to introduce restrictions on tobacco companies that have not left Russia and increase the ad valorem tax rate for the products that these companies sell in Ukraine. They cite the example of Estonia, which in March prohibited the trade of products from international companies still operating in Russia.