44 UAH is the amount of taxes stolen by the shadow market from each pack of cigarettes

14/ 11/ 2022

For almost 9 months, Ukraine has been heroically fighting for its independence and freedom, and business continues to hold the economic front, paying taxes, salaries, and supporting the country and people. According to the State Tax Service, in January-October this year, the transparent business paid UAH 575.5 billion in taxes to the state budget, which is 17.9% more than in the previous year. The TOP-3 main taxes include the excise tax on excisable goods produced in Ukraine – UAH 9.3 billion, which is 8.8% more than in the previous year. At the same time, the war, the devastating consequences of shelling, disruption of supply chains, damage (and sometimes destruction) of warehouses and production facilities, and a number of other economic and financial consequences are spiraling inflation, which is expected to reach 30% in 2022. This, in turn, leads to the fact that the population, in order to save money, chooses cheaper products, and, unfortunately, they often turn out to be fake. In such a situation, the demand for the illegal market of goods is created unconsciously. That leads to multi-billion financial damage to the state, transparent business, not to mention reputational problems. In general, according to the latest official data of the Ministry of Economy, the shadow level increased by 2% in 2021 and amounts to 32%. If we talk about the scale of individual industries, in this context, it is worth paying attention to the tobacco industry, which is one of the largest taxpayers in Ukraine. Thus, according to the latest analysis of the illegal tobacco market by Kantar Ukraine, at the end of August 2022, the total level of illegal trade in tobacco products in Ukraine reached 21.9%. In monetary terms, the state budget did not receive about UAH 20.6 billion, which is an extremely big amount, especially in times of war. If we compare these figures with the last years results – 16.9% and 15.5 billion UAH respectively – that is, the volume of the illegal market has increased by more than 30% per year. In general, all illegal tobacco products (21.9% in 2022) belong to three main categories – products labeled Duty Free or intended for export, which is illegally sold in Ukraine (12.2%), counterfeit products (8%), and smuggling (1.8%). It is also worth noting that since 2016 the market of illegal tobacco products continues to grow steadily (only in 2019, there was a slight recession compared to the previous year - 5.7% to 6.1% in 2018). The trend is not encouraging at all, moreover, considering this in the context of EU candidacy as Europe has a clear position on this issue - the problem of the existing illegal market must be solved. Not so long ago, there was a series of news in the information field about the rather active actions of law enforcement agencies to detect the shadow market of tobacco products, which we also noted from the EBA side – this is certainly welcomed by conscientious, transparent business. However, the latest analysis of the illegal tobacco market by Kantar Ukraine shows that individual raids are not enough to fight the shadow. As noted by the EBA member companies, trials and inspections in such cases last for years, and sometimes seized equipment, raw materials, and other evidence of illegal activities are returned to illegal producers by court decision. Therefore, transparent business hopes for fair court decisions that will lead to a reduction in the share of illegal tobacco products in the coming months. Moreover, we need a comprehensive approach and a clear position of law enforcement – no tolerance for the entire shadow market. Only in this way, we will be able not only to notice the changes but also to see a significant reduction in the share of the illegal tobacco market and the shadow in other industries in the next surveys. For its part, the EBA business community is ready to cooperate to reduce the shadow sector in Ukraine!

According to the State Tax Service, in January-October this year, the transparent business paid UAH 575.5 billion in taxes to the state budget, which is 17.9% more than in the previous year. The TOP-3 main taxes include the excise tax on excisable goods produced in Ukraine – UAH 9.3 billion, which is 8.8% more than in the previous year.

At the same time, the war, the devastating consequences of shelling, disruption of supply chains, damage (and sometimes destruction) of warehouses and production facilities, and a number of other economic and financial consequences are spiraling inflation, which is expected to reach 30% in 2022. This, in turn, leads to the fact that the population, in order to save money, chooses cheaper products, and, unfortunately, they often turn out to be fake. In such a situation, the demand for the illegal market of goods is created unconsciously. That leads to multi-billion financial damage to the state, transparent business, not to mention reputational problems.

In general, according to the latest official data of the Ministry of Economy, the shadow level increased by 2% in 2021 and amounts to 32%. If we talk about the scale of individual industries, in this context, it is worth paying attention to the tobacco industry, which is one of the largest taxpayers in Ukraine.

Thus, according to the latest analysis of the illegal tobacco market by Kantar Ukraine, at the end of August 2022, the total level of illegal trade in tobacco products in Ukraine reached 21.9%. In monetary terms, the state budget did not receive about UAH 20.6 billion, which is an extremely big amount, especially in times of war. If we compare these figures with the last year’s results – 16.9% and 15.5 billion UAH respectively – that is, the volume of the illegal market has increased by more than 30% per year. In general, all illegal tobacco products (21.9% in 2022) belong to three main categories – products labeled Duty Free or intended for export, which is illegally sold in Ukraine (12.2%), counterfeit products (8%), and smuggling (1.8%).

It is also worth noting that since 2016 the market of illegal tobacco products continues to grow steadily (only in 2019, there was a slight recession compared to the previous year – 5.7% to 6.1% in 2018). The trend is not encouraging at all, moreover, considering this in the context of EU candidacy as Europe has a clear position on this issue – the problem of the existing illegal market must be solved.

Not so long ago, there was a series of news in the information field about the rather active actions of law enforcement agencies to detect the shadow market of tobacco products, which we also noted from the EBA side – this is certainly welcomed by conscientious, transparent business. However, the latest analysis of the illegal tobacco market by Kantar Ukraine shows that individual raids are not enough to fight the shadow. As noted by the EBA member companies, trials and inspections in such cases last for years, and sometimes seized equipment, raw materials, and other evidence of illegal activities are returned to illegal producers by court decision.

Therefore, transparent business hopes for fair court decisions that will lead to a reduction in the share of illegal tobacco products in the coming months.

Moreover, we need a comprehensive approach and a clear position of law enforcement – no tolerance for the entire shadow market. Only in this way, we will be able not only to notice the changes but also to see a significant reduction in the share of the illegal tobacco market and the shadow in other industries in the next surveys.

For its part, the EBA business community is ready to cooperate to reduce the shadow sector in Ukraine!