According to an expert, Ukraine has become the largest source of illicit tobacco in Europe, surpassing China in 2020. The illegal trade in tobacco products in Ukraine is expected to result in revenue losses of up to 20.5 billion hryvnias ($511 million) in unpaid or underpaid taxes in 2022. Despite an agreement between Ukraine and the European Union to increase cigarette taxes, the problem of illegal trade has only worsened. The legal volume of cigarettes has decreased by 46% between 2018 and 2022, while the share of illegal trade has reached a record high of 25.7% in October 2023.
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Inability of Ukraine to address this issue demonstrates its institutional capacity and lack of implementation of economic reforms and corruption-fighting measures, which international organizations like the IMF and EBRD have been calling for. The existence of such a large illegal trade could undermine Ukraine's relationship with the West. However, the expert believes that this problem can be solved by setting achievable goals and benchmarks in fight against illegal tobacco trade. By doing so, Ukraine could generate significant additional budget revenues and demonstrate its political will and institutional capacity to finance itself.
Stephen J. Blank, a senior fellow in FPRI's Eurasia Program, suggests that organized criminal groups are likely behind the scale of illegal trade and that corruption and cronyism are deeply rooted in the country. In order for Ukraine to become a member of the European Union, it will need to address these issues and change the culture of political corruption.
A study by Kantar Ukraine showed that the overall level of illegal trade in tobacco products in Ukraine decreased by 19.1% between October 2023 and March 2024. The most frequently illegally sold products were from Vynnyky Tobacco Factory and United Tobacco. Counterfeit products with fake excise stamps accounted for 32% of the total, with Ukrainian tobacco production and pseudo-producers being major contributors. The proposed ban on selling cigarettes in kiosks has also been mentioned.
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Average annual volume of illegal cigarette market in Ukraine reached 21.8% in 2023, and a significant portion of counterfeit products had fake excise stamps. Distribution of illegal products was concentrated in eight oblasts, with Dnipro being the largest at 17% followed by Odesa, Lviv, Kharkiv, Khmelnytskyi, Kirovohrad, Chernivtsi, and Rivne.
In conclusion, Ukraine's illegal trade in tobacco products has reached alarming levels, with significant revenue losses for the government and potential consequences for the country's relationship with the West. The issue is rooted in institutional weaknesses and corruption. Addressing this problem requires setting achievable goals and benchmarks, as well as tackling corruption and changing the culture of political corruption in order to pave the way for Ukraine's potential membership in the EU.
In March 2024, the EBA (European Banking Authority) revealed that a 99.9% of the 600 packs of HTPs (Heated Tobacco Products) in Ukraine were legal.
Following this, on May 14, simultaneous searches were carried out at the five largest domestic tobacco producers in Ukraine, based on confirmed information of their involvement in illegal activities.
Lviv factory and a converter factory in Kyiv were among those targeted, with counterfeit excise stamps and unlabeled tobacco products discovered at some of the locations. Danylo Hetmantsev, Chairman of Verkhovna Rada Committee on Finance, Taxation, and Customs Policy, stated that production of illegal tobacco has been fully stopped and expressed hope that it will be permanently blocked. He further suggested that there may be more searches in relation to the case.
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Read the original article on The New Voice of Ukraine
Section: Business
Author: Владислав Литнарович
