Business does not support the new regulation on domestic tobacco raw materials and the duplication of the control system

07/ 10/ 2025

The European Business Association has addressed an official letter to the Verkhovna Rada of Ukraine, urging Members of Parliament to reject Draft Law No. 13628 “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine.” According to the business community, the document poses serious economic and legal risks, includes provisions that contradict the Constitution of Ukraine, the country’s international commitments, and the principles of a market economy, while also creating significant threats to the stability of the tobacco industry and the economy as a whole. Key concerns raised by the business community: The draft law obliges tobacco manufacturers to use Ukrainian-grown tobacco — 2% from 2027, 3% from 2028, and 5% from 2029. Such an approach limits manufacturers’ freedom to choose suppliers, creates dependence on local farmers, and could lead to artificial price increases, higher production costs, and lower operational efficiency. The draft law does not take into account Ukraine’s climatic and security risks, potential crop losses, or force majeure circumstances during wartime. Given the current instability, any factor affecting crop yields may make it impossible for tobacco producers to comply with the proposed requirements. International tobacco companies use raw materials that meet strict quality standards. The draft law contains no requirements for the quality characteristics of Ukrainian tobacco. As a result, producers could be forced to use low-quality or unsuitable raw materials, compromising production standards. The document does not define procedures for verifying or controlling the quality of tobacco, nor a clear methodology for determining the share of domestic raw materials in the final product. This opens the door to potential abuse and creates additional legal and operational risks for producers. Mandatory use of Ukrainian tobacco would require significant production adjustments and carries the risk of: lower product quality and competitiveness, higher retail prices amid an already high level of illicit trade, potential production stoppages due to insufficient quality raw materials. Duplication of control mechanisms The proposed system for monitoring tobacco raw material stocks duplicates existing State Tax Service tools, including monthly reporting, loss rate monitoring, video surveillance at warehouses and production facilities, control posts, and the upcoming e-Excise system. Additional regulatory requirements would only increase costs for producers without improving control efficiency. Changes to the calculation of the minimum excise tax liability on cigarettes Businesses emphasise that any amendments should not affect the already approved gradual excise tax increase schedule until 2028, which ensures predictability for the tobacco industry and stable tax policy implementation. If adopted, the draft law could lead to: a decline in domestic production and market reorientation towards imported finished goods; higher consumer prices and reduced competitiveness; job losses in the tobacco industry; lower tax revenues to state and local budgets. In light of these risks and potential consequences, the business community calls on Members of Parliament to reject the draft law at its first reading.

According to the business community, the document poses serious economic and legal risks, includes provisions that contradict the Constitution of Ukraine, the country’s international commitments, and the principles of a market economy, while also creating significant threats to the stability of the tobacco industry and the economy as a whole.

Key concerns raised by the business community:

The draft law obliges tobacco manufacturers to use Ukrainian-grown tobacco — 2% from 2027, 3% from 2028, and 5% from 2029.

Such an approach limits manufacturers’ freedom to choose suppliers, creates dependence on local farmers, and could lead to artificial price increases, higher production costs, and lower operational efficiency.

The draft law does not take into account Ukraine’s climatic and security risks, potential crop losses, or force majeure circumstances during wartime. Given the current instability, any factor affecting crop yields may make it impossible for tobacco producers to comply with the proposed requirements.

International tobacco companies use raw materials that meet strict quality standards. The draft law contains no requirements for the quality characteristics of Ukrainian tobacco. As a result, producers could be forced to use low-quality or unsuitable raw materials, compromising production standards.

The document does not define procedures for verifying or controlling the quality of tobacco, nor a clear methodology for determining the share of domestic raw materials in the final product. This opens the door to potential abuse and creates additional legal and operational risks for producers.

Mandatory use of Ukrainian tobacco would require significant production adjustments and carries the risk of:

lower product quality and competitiveness,
higher retail prices amid an already high level of illicit trade,
potential production stoppages due to insufficient quality raw materials.
Duplication of control mechanisms

The proposed system for monitoring tobacco raw material stocks duplicates existing State Tax Service tools, including monthly reporting, loss rate monitoring, video surveillance at warehouses and production facilities, control posts, and the upcoming e-Excise system. Additional regulatory requirements would only increase costs for producers without improving control efficiency.

Changes to the calculation of the minimum excise tax liability on cigarettes

Businesses emphasise that any amendments should not affect the already approved gradual excise tax increase schedule until 2028, which ensures predictability for the tobacco industry and stable tax policy implementation.

If adopted, the draft law could lead to:

a decline in domestic production and market reorientation towards imported finished goods;
higher consumer prices and reduced competitiveness;
job losses in the tobacco industry;
lower tax revenues to state and local budgets.

In light of these risks and potential consequences, the business community calls on Members of Parliament to reject the draft law at its first reading.