₴400+ billion in the shadows: why businesses and the state are interested in de-shadowing

04/ 03/ 2025

Listen to online Stop   On 3 March, the European Business Association hosted an expert discussion titled De-Shadowing and Fair Competition, bringing together business representatives, Members of Parliament, law enforcement, and regulatory authorities. The discussion was prompted by the scale of the illegal market, which negatively impacts various sectors of the economy, including the tobacco industry, retail trade, consumer electronics, and the telecommunications sector. Amidst wartime conditions, losses to the state budget due to the shadow economy have become increasingly significant, prompting businesses and government bodies to seek effective solutions to address this issue. The first panel discussion featured Sergiy Badritdinov (Intertop), Andriy Fita (JTI Ukraine), Artem Freyuk (Kyivstar), Danylo Getmantsev and Yaroslav Zheleznyak (Parliamentary Committee on Finance, Tax and Customs Policy), Kostiantyn Ovcharov (Economic Security Bureau), and Konstiantin Gamkrelidze (Dega Partners). The key takeaways from the panel were: De-shadowing as a revenue source for the state budget. Estimates suggest that Ukraine’s shadow economy results in budget losses of ₴400-450 billion annually. Fiscalisation—mandatory use of cash registers (RRO/PRRO)—has had a positive impact in bringing entrepreneurs out of the shadows. Illegal tobacco trade has decreased from 25% to 12.6% over the past year, generating an additional ₴8-10 billion for the state budget. However, the shadow market remains substantial, with projected budget losses of ₴22 billion in 2025. Business expects the adoption of key legislative initiatives, including Excise Bill No. 11090 and Bill No. 9364, which strengthen accountability for illicit trade in excise goods. A reference library of tobacco samples could enhance enforcement efforts, aiding in counterfeit detection, rapid identification of illegal products, and strengthening legal proceedings. Stronger enforcement is needed to uphold the ban on flavoured e-cigarette liquids and close legal loopholes that allow circumvention of existing regulations. The telecommunications market has long suffered from the practice of internet providers splitting businessesto operate under a simplified tax regime, creating unfair competition and costing the state ₴1.6-3 billion annually. Since October 2024, providers have been prohibited from using the simplified tax system, and the first positive results are already visible. EBA experts support the abolition of tax privileges for international parcel deliveries. In 2024, the Economic Security Bureau confiscated illegal excise goods worth ₴1.5 billion, with ₴5.3 billion in damages recovered. Regulatory agencies must enhance oversight to prevent tax evasion and circumvention of legal requirements. In many areas, existing regulations are sufficient, but enforcement must be strengthened. Labour de-shadowing remains a priority, requiring tighter control over cash-in-hand wages and abuse of the simplified tax system. Andriy Fita. Deputy General Director for Corporate Affairs and Communications at JTI Ukraine. The tobacco industry is at the forefront of combating illegal trade. Over the past year, we managed to cut the illicit market in half—from 25% to 12.6%. However, the volume remains significant, and the state budget could still lose ₴22 billion this year. Our shared goal is to maintain this positive momentum. While law enforcement now has sufficient control points, we must focus on strengthening institutional capacity and increasing accountability. Danylo Getmantsev. Chairman of the Verkhovna Rada Committee on Finance, Tax, and Customs Policy. Given the tragic geopolitical situation, we must increasingly rely on our own resources to ensure Ukraine’s financial stability in 2025 and 2026. This requires setting key priorities: first, a review of state expenditures, and second, greater business responsibility—shadow schemes and non-transparent practices must become unacceptable. The state must seek financial reserves, including within the ‘shadow economy,’ where ₴400-450 billion disappears annually. The second panel focused on the threats posed by illicit trade in the food and alcohol sectors, as well as control measures implemented by the relevant authorities. Panel participants included Ruslan Dubas (Auchan Ukraine), Anton Yeliseyev (Pernod Ricard Ukraine), Serhiy Tkachuk (State Service of Ukraine on Food Safety and Consumer Protection), Volodymyr Tsenov (National Police of Ukraine), Yuriy Vasiuk (State Tax Service of Ukraine), Oleksiy Kalinovych (State Customs Service of Ukraine), and Oleksandr Chekrygin (State Emergency Service of Ukraine). They discussed effective measures to control violations in the field of illicit trade. The key discussion points were: State budget losses from illicit trade in food retail are estimated at ₴50 billion. Ukraine lacks a legal definition of food fraud, depriving regulators of tools to combat counterfeit products. Alcohol counterfeiting often involves the production and sale of alcohol in ‘bag-in-box’ packaging under the guise of global brands, supposedly for duty-free sales. A vast network of small illegal producers and the absence of a quick-response mechanism for blocking illegal online shops complicate enforcement. The electronic excise system is currently being implemented. The business community expects it to significantly hinder illicit alcohol and tobacco trade. The system entered the testing phase on 1 March, and preliminary results in May will help determine the timeline for full implementation. Of Ukraine’s 25 operational customs checkpoints, only seven are equipped with cargo scanning systems.Currently, only 10% of goods can be scanned, highlighting the urgent need for infrastructure improvements to combat smuggling. Smuggling schemes still rely on small-scale, undeclared shipments, often hidden within legitimate cargo. Serhiy Tkachuk. Head of the State Service of Ukraine on Food Safety and Consumer Protection. Ensuring full traceability in food safety is a key EU integration requirement that will help tackle the shadow economy in the food sector. Last year, Ukraine joined TRACES-NT, the EU′s electronic certification system. However, the lack of a legal definition for food fraud leaves regulators without the necessary enforcement tools. The event served as a vital platform for identifying solutions to reduce the scale of the shadow economy, ensure fair competition, and boost state budget revenues. The European Business Association extends its gratitude to all speakers and participants, especially to JTI Ukraine, the event’s initiator, for fostering dialogue and collective action against illicit trade and shadow markets.

On 3 March, the European Business Association hosted an expert discussion titled “De-Shadowing and Fair Competition”, bringing together business representatives, Members of Parliament, law enforcement, and regulatory authorities.

The discussion was prompted by the scale of the illegal market, which negatively impacts various sectors of the economy, including the tobacco industry, retail trade, consumer electronics, and the telecommunications sector. Amidst wartime conditions, losses to the state budget due to the shadow economy have become increasingly significant, prompting businesses and government bodies to seek effective solutions to address this issue.

The first panel discussion featured Sergiy Badritdinov (Intertop), Andriy Fita (JTI Ukraine), Artem Freyuk (Kyivstar), Danylo Getmantsev and Yaroslav Zheleznyak (Parliamentary Committee on Finance, Tax and Customs Policy), Kostiantyn Ovcharov (Economic Security Bureau), and Konstiantin Gamkrelidze (Dega Partners). The key takeaways from the panel were:

• De-shadowing as a revenue source for the state budget. Estimates suggest that Ukraine’s shadow economy results in budget losses of ₴400-450 billion annually.
• Fiscalisation—mandatory use of cash registers (RRO/PRRO)—has had a positive impact in bringing entrepreneurs out of the shadows.
• Illegal tobacco trade has decreased from 25% to 12.6% over the past year, generating an additional ₴8-10 billion for the state budget. However, the shadow market remains substantial, with projected budget losses of ₴22 billion in 2025.
• Business expects the adoption of key legislative initiatives, including Excise Bill No. 11090 and Bill No. 9364, which strengthen accountability for illicit trade in excise goods.
• A reference library of tobacco samples could enhance enforcement efforts, aiding in counterfeit detection, rapid identification of illegal products, and strengthening legal proceedings.
• Stronger enforcement is needed to uphold the ban on flavoured e-cigarette liquids and close legal loopholes that allow circumvention of existing regulations.
• The telecommunications market has long suffered from the practice of internet providers splitting businessesto operate under a simplified tax regime, creating unfair competition and costing the state ₴1.6-3 billion annually. Since October 2024, providers have been prohibited from using the simplified tax system, and the first positive results are already visible.
• EBA experts support the abolition of tax privileges for international parcel deliveries.
• In 2024, the Economic Security Bureau confiscated illegal excise goods worth ₴1.5 billion, with ₴5.3 billion in damages recovered.
• Regulatory agencies must enhance oversight to prevent tax evasion and circumvention of legal requirements. In many areas, existing regulations are sufficient, but enforcement must be strengthened.
• Labour de-shadowing remains a priority, requiring tighter control over cash-in-hand wages and abuse of the simplified tax system.

Andriy Fita Deputy General Director for Corporate Affairs and Communications at JTI Ukraine

The tobacco industry is at the forefront of combating illegal trade. Over the past year, we managed to cut the illicit market in half—from 25% to 12.6%. However, the volume remains significant, and the state budget could still lose ₴22 billion this year. Our shared goal is to maintain this positive momentum. While law enforcement now has sufficient control points, we must focus on strengthening institutional capacity and increasing accountability.

Danylo Getmantsev Chairman of the Verkhovna Rada Committee on Finance, Tax, and Customs Policy

Given the tragic geopolitical situation, we must increasingly rely on our own resources to ensure Ukraine’s financial stability in 2025 and 2026. This requires setting key priorities: first, a review of state expenditures, and second, greater business responsibility—shadow schemes and non-transparent practices must become unacceptable. The state must seek financial reserves, including within the ‘shadow economy,’ where ₴400-450 billion disappears annually.

The second panel focused on the threats posed by illicit trade in the food and alcohol sectors, as well as control measures implemented by the relevant authorities. Panel participants included Ruslan Dubas (Auchan Ukraine), Anton Yeliseyev (Pernod Ricard Ukraine), Serhiy Tkachuk (State Service of Ukraine on Food Safety and Consumer Protection), Volodymyr Tsenov (National Police of Ukraine), Yuriy Vasiuk (State Tax Service of Ukraine), Oleksiy Kalinovych (State Customs Service of Ukraine), and Oleksandr Chekrygin (State Emergency Service of Ukraine). They discussed effective measures to control violations in the field of illicit trade. The key discussion points were:

• State budget losses from illicit trade in food retail are estimated at ₴50 billion.
• Ukraine lacks a legal definition of food fraud, depriving regulators of tools to combat counterfeit products.
• Alcohol counterfeiting often involves the production and sale of alcohol in ‘bag-in-box’ packaging under the guise of global brands, supposedly for duty-free sales. A vast network of small illegal producers and the absence of a quick-response mechanism for blocking illegal online shops complicate enforcement.
• The electronic excise system is currently being implemented. The business community expects it to significantly hinder illicit alcohol and tobacco trade. The system entered the testing phase on 1 March, and preliminary results in May will help determine the timeline for full implementation.
• Of Ukraine’s 25 operational customs checkpoints, only seven are equipped with cargo scanning systems.Currently, only 10% of goods can be scanned, highlighting the urgent need for infrastructure improvements to combat smuggling.
• Smuggling schemes still rely on small-scale, undeclared shipments, often hidden within legitimate cargo.

Serhiy Tkachuk Head of the State Service of Ukraine on Food Safety and Consumer Protection

Ensuring full traceability in food safety is a key EU integration requirement that will help tackle the shadow economy in the food sector. Last year, Ukraine joined TRACES-NT, the EU′s electronic certification system. However, the lack of a legal definition for food fraud leaves regulators without the necessary enforcement tools.

The event served as a vital platform for identifying solutions to reduce the scale of the shadow economy, ensure fair competition, and boost state budget revenues.

The European Business Association extends its gratitude to all speakers and participants, especially to JTI Ukraine, the event’s initiator, for fostering dialogue and collective action against illicit trade and shadow markets.