The government's proposal to increase excise duties on tobacco goods starting from October 1, 2009 will lead to an increase of the illegal market, representatives of the tobacco industry have said.
"If there is no rise in taxes, then 20% of the market will be illegal, but if there is a rise then we will lose 20% of the legal market over a year," Yuriy Kishko, the corporate issues manager at the Imperial Tobacco Ukraine said in Kyiv on Tuesday at a meeting of the European Business Association on Ukraine's fiscal policy on the market of tobacco goods within the scope of the European integration.
He said that from the last rise in excise duties in May 2009 there was a considerable rise in illegal cigarette sales in Ukraine.
"Our trade representatives have recorded about 500 places where illegal cigarettes are sold," Kishko said.
Dmytro Redko, the director of corporate affairs at the JT International Company Ukraine, said that from May until June 2009 the drop in sales of legal products was 25% since the last rise in the excise duties on cigarettes. He noted that the excise duties on tobacco have been raised three times over the last 12 months.
According to Konstantyn Ryabenko, the Corporate Affairs Director at the Philip Morris Ukraine, with a rise in excise duties from October 1, 2009 in Ukraine the tobacco would grow in price by 25%
"The rise in the excise duties in Ukraine in 2009, including the proposed rise, is unprecedented in its size in international experience. The excise requirements could be raised by 50% in comparison with the current requirements and could lead to a rise in prices by another 25%," he said.
Ryabenko also said that the domestic cigarette industry is forced to compete with cheap fakes.
As reported, the government of Ukraine proposed that parliament increase tobacco excise duties from 20% to 36%. Starting from May 1, 2009 Ukraine increased the minimum excise duties on non-filter cigarettes from UAH 25 to UAH 50 per 1,000 and filtered cigarettes from UAH 47 to UAH 100 per 1,000. Thus, the minimum excise rate per pack of 20 non-filter cigarettes grew from UAH 0.50 to UAH 1 and of 20 filtered cigarettes from UAH 0.94 to UAH 2.
The increase in specific excise duty on cigars made from UAH 50 per kg to UAH 60 per 1,000, on non-filter cigarettes from UAH 15.60 to UAH 35 per 1,000, and filtered cigarettes from UAH 37.50 to UAH 60 per 1,000.
"We urge the government to keep the current excise rates, taking into account the already adopted indexation of a certain component and a minimum tax by 15% starting from January 2010," he said.
