Tobacco producers continue keeping low prices of some cigarette brands after rise of excise duties

Tobacco manufacturers continue keeping low price of some brands of cigarettes, selling them at a loss, after the increase of the specific rate of the excise duty by 40% from January 1, 2016.

"Manufacturers continue retaining low prices of some brands, selling them at a loss. One can find cigarettes at UAH 8.50 per package in recent declarations, while the share of taxes in the prices of a package is no less than UAH 10.22," Corporate Affairs Director at JTI Ukraine Oleksandr Kohut has told Interfax-Ukraine.

He said that these price wars last for almost one year.

He added that on February 11, 2016, the Finance Ministry proposed that the introduction of the minimum prices of cigarettes is revoked and the ad valorem rate of the excise duty is increased by 3 percentage points.

"In our situation the increase of the ad valorem rate of the excise duty cannot be considered as an alternative to the minimum prices, as the ad valorem rate is per cent of the price of products that is applied to the cigarettes which price is more than UAH 17.92. It would not influence the problems in the basic price segment," he said.

Kohut supports the idea of the State Fiscal Service that the cheapest package of cigarettes cannot cost less than UAH 15. The price will cover the tax burden, expenses on production and logistics.

He said that the increase of the ad valorem rate is not a European trend. The EU countries increase the specific rate of the excise duty on cigarettes and decrease the ad valorem rate. In 2010-2014, the ad valorem rate was cut by 22 out of 28 EU countries. The ad valorem rate in Sweden, Denmark and the Netherlands is 1% today. The EU Directive 2011/64 contains requirements only regarding the specific rate of the excise duty and the smallest excise duty burden.