Excise duties on cigarettes passed by Rada are anticompetitive - Imperial Tobacco

Imperial Tobacco in Ukraine, one of the largest cigarette producers, has said that retaining of the ad valorem rate of the excise duty on cigarettes with the increase of the specific rate by 40%, to UAH 318.26 per 1,000 cigarettes is anticompetitive.

"Compared to the initially proposed figures by the Finance Ministry [40% for the specific rate, 15% for ad valorem rate] the adopted bill deprives the national budget of an additional UAH 1.5 billion. This is the cost of the refusal of lawmakers to increase the ad valorem rate by 3 percentage points," Corporate Affairs Director at Imperial Tobacco in Ukraine, Moldova and the Caucasus countries Oleh Strekal told Interfax-Ukraine.

He said that the main lobbyist for cutting the ad valorem rate was MP Yuriy Lutsenko, head of the Petro Poroshenko Block.

"The reason why Yuriy Lutsenko decided to help two players of the tobacco market at cost of the national budget is unclear for us," he said.

Corporate Affairs Director at JTI Ukraine Oleksandr Kohut supports the decision of the parliament not to increase the ad valorem rate which depends on the price of the cigarettes. He said that in 2015, this segment generated at least 10% of revenue from the excise duty on cigarettes.

"The increase of the ad valorem rate does not approach us to the European level of tax rates, as EU Directive 2011/64 contains requirements only to the bottom level of the specific component of the excise duty and the smallest excise duty burden," he said.

Strekal believes that the decision to set bottom prices of cigarettes is a long spoke in the wheel of Ukraine's European integration.

"The EU prohibits bottom prices. Arguments of Europeans are clear: bottom prices kill competition on the tobacco market, they resulting in getting additional profits by tobacco companies and they do not service the interest of public health protection.

All market players expect that the prices of cigarettes will grow in the range from UAH 3 to UAH 5 per package.