09:05 09.11.2022

Budget loses UAH 44 from each illegal pack of cigarettes – Philip Morris General Manager

4 min read
Budget loses UAH 44 from each illegal pack of cigarettes – Philip Morris General Manager

The Ukrainian authorities should now begin a systematic counteraction to the illegal tobacco business, since the share of illegal tobacco products in August 2022 grew by 5 percentage points (p.p.) to 21.9% from 16.9% in 2021. This trend has been going on since 2016.

"The war, inflation, and the drop in citizens' incomes only accelerated the growth of the illegal tobacco market in Ukraine. From each illegal pack of cigarettes, the State Budget does not receive UAH 44. For the year 2022, the total estimate of State Budget losses already amounts to UAH 20.6 billion. Therefore, it is extremely important to start a systematic fight against the illegal tobacco business right now," General Manager of PJSC Philip Morris Ukraine Maksym Barabash said at a roundtable on issues of illegal trade of tobacco products organized the American Chamber of Commerce in Ukraine.

In addition, representatives of the tobacco business proposed that a joint working group with a coordination center in the Office of the President is created.

"Countering illegal turnover of tobacco products belongs to the competence of several regulatory and law enforcement agencies. However, due to the unclear division of powers, these agencies do not always work in a coordinated manner and sometimes even compete with each other. Therefore, we ask to create a joint working group with a coordination center in the Office of the President," General Manager of JTI Ukraine Svitlana Sharamok said at the roundtable.

"We also believe that the indicator of the effectiveness of the work of such a group should not be the number of raids or confiscated cigarettes but a real decrease in the level of illegal turnover - to a certain established indicator for a certain period," she added.

In turn, the American Chamber of Commerce said that its members continue operating, paying taxes, keep Ukrainians employed, and ready to actively participate in Ukraine's post-war economic rebuilding, so it is essential to put maximum effort now to ensure an attractive investment climate and guarantee a level playing field.

"Effective communication and coordination between all involved state authorities and businesses are critical for implementing effective measures to combat the illegal turnover in tobacco products," President of the American Chamber of Commerce in Ukraine Andy Hunder said.

During the meeting, the participants referred to the data of the October research by the Kantar Ukraine Institute, according to which the total volume of cigarettes illegally sold in Ukraine since the beginning of 2022 has reached 8.46 billion units, equaling the corresponding volumes for the whole of 2021. At the same time, in August 2022, the share of counterfeit cigarettes in Ukraine amounted to 8% of the total market, while in 2021 in November it was 6.6%, in August 5.6%, and in February 4.2%.

Thus, the share of cigarettes labeled as intended for export and sale in Duty Free, but at the same time sold illegally in Ukraine, in August of this year amounted to 12.2% of the entire Ukrainian cigarette market, although in November 2021 it was 10.9%, in August 9.8% and in February 6.9%.

In addition, according to the Institute, 56% of tobacco products (in 2021 it was 62%), illegally sold in 2022 as export or Duty Free products, were marked as produced by the Vinniki Tobacco Factory (Vinniki, Lviv region) and were labeled as not intended for sales in Ukraine. The share of unidentified manufacturers was 24% (in 2021 it was 23%), the share of United Tobacco LLC (Zhovti Vody, Dnipropetrovsk region) was 19% (in 2021 it was 15%).

In turn, the share of smuggled cigarettes in August 2022 decreased to 1.8% compared to 2.9% last year in November and 2.7% in August 2021.

Among smuggled cigarettes, 15% were products of the Belarusian Grodno Tobacco Factory (45% in 2021), 14% - Moldovan factories (15%), unidentified manufacturers - 70%. The most common smuggled brands are Brut, Ritm, Marshall, NZ, Bacio, Williams.

According to the study, the average annual level of illegal sales of tobacco products in Ukraine in 2021 was 16.9%, while in 2020 it was 6.9% (10 percentage points less), in 2019 it was 6.6% (10.3 percentage points less), in 2018 - 4.4% (12.5 percentage points less). The minimum volume of the illegal cigarette market for a decade was recorded in 2016 – 1.1%.