Ukraine Urged to Delay Tax Rate Convergence

Ukraine’s leading cigarette manufacturers have called on the government to postpone the date by which the country’s tobacco excise tax must match those in the EU from 2025 to 2030, citing out-of-control growth of illicit tobacco sales, reports Ukraine Open for Business.

According to the Kantar Ukraine research institute, the black market jumped from 1 percent of all tobacco sales in 2016 to 18.1 percent in August 2021 as the country is increasing its tobacco excise taxes to the EU level of €90 per 1,000 cigarettes by 2025.

The current rate is €48.4 per 1,000 cigarettes.

Ukraine’s total legal cigarette market is now estimated at 32.7 billion units, which is 18 percent less than in 2020 and more than 40 percent less than its volume in 2018.

“We propose to expand the schedule for increasing excise taxes on tobacco products until 2030, providing for an annual increase in rates at the level of 10 percent [instead of the current 20 percent]. This will stabilize the situation in the tobacco market,” said Rastislav Cernak, CEO of Imperial Tobacco Ukraine.

He also proposed to “freeze” the increase in the excise tax on heated-tobacco products for three years, until 2024. “This approach will give the consumer more time to adjust to higher prices and deprive the illegal market of the potential for growth,” said Cernak.

Philip Morris International hinted it would consider manufacturing tobacco-heating products in Ukraine if the state creates the appropriate conditions.

Local manufacture of such products could generate more than UAH6 billion ($229.5 million) in investments and UAH4 billion in additional income, according to some estimates.