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Business is concerned about the resumption of illegal tobacco production

21/ 10/ 2024
  Member companies of the European Business Association, official tobacco product manufacturers, are concerned about reports of the resumption of illegal tobacco production, despite extensive raids and investigations carried out this year against such factories. On May 14, raids took place at five of the largest domestic tobacco factories, which had established illegal production of unregistered products under the cover of legitimate activities. Law enforcement authorities discovered counterfeit excise stamps, and unmarked tobacco products, and effectively shut down the illegal operations of these manufacturers. These actions yielded results – by July, the overall level of illegal tobacco trade in Ukraine decreased to 14.6% (compared to 19.1% at the beginning of the year and 25.7% in October 2023). This information comes from the Monitoring Illegal Tobacco Trade in Ukraine project conducted by Kantar Ukraine at the request of leading domestic tobacco manufacturers. Infographic: Kantar Ukraine According to the study, the producer of 52% of the illegal products labeled as Duty-Free or intended for export but illegally sold in Ukraine is the Vynnyky Tobacco Factory. The brands Compliment and Lifa from this producer, marked with Duty-Free, accounted for 51% of this group of illegal products. Additionally, 33% of counterfeit products show signs of fake excise stamps. According to the packaging, they were produced by United Tobacco / Marshall Finest Tobacco / VK Tobacco FZE (17%) and Ukrainian Tobacco Production (16%). On October 5, Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Tax, and Customs Policy, reported that after a three-month hiatus, illegal production had resumed in the western part of the country. In response, the Verkhovna Rada Committee, during its meeting on October 4, issued several instructions to law enforcement agencies. Specifically, the Director of the Economic Security Bureau was tasked with promptly analyzing the cases of illegal activity resumption at tobacco production enterprises, while the leadership of the State Tax Service was instructed to take measures to prevent or revoke licenses for persons known to have committed violations. The National Police and the State Tax Service were also directed to jointly inspect retail outlets selling tobacco products. Despite effective actions by law enforcement, as of September 2024, the losses to Ukraines state budget are estimated at 23 billion UAH. This is happening at a time when the state must increase taxes on compliant businesses to finance defense needs. The legitimate businesses are extremely concerned about the resumption of illegal tobacco production and urge law enforcement to put an end to these illegal activities. The European Business Association once again highlights the fiscal potential of the shadow sector, particularly the illegal production of excisable goods.

Member companies of the European Business Association, official tobacco product manufacturers, are concerned about reports of the resumption of illegal tobacco production, despite extensive raids and investigations carried out this year against such factories.

On May 14, raids took place at five of the largest domestic tobacco factories, which had established illegal production of unregistered products under the cover of legitimate activities. Law enforcement authorities discovered counterfeit excise stamps, and unmarked tobacco products, and effectively shut down the illegal operations of these manufacturers.

These actions yielded results – by July, the overall level of illegal tobacco trade in Ukraine decreased to 14.6% (compared to 19.1% at the beginning of the year and 25.7% in October 2023). This information comes from the “Monitoring Illegal Tobacco Trade in Ukraine” project conducted by Kantar Ukraine at the request of leading domestic tobacco manufacturers.

Infographic: Kantar Ukraine

According to the study, the producer of 52% of the illegal products labeled as Duty-Free or intended for export but illegally sold in Ukraine is the Vynnyky Tobacco Factory. The brands’ Compliment and Lifa from this producer, marked with Duty-Free, accounted for 51% of this group of illegal products. Additionally, 33% of counterfeit products show signs of fake excise stamps. According to the packaging, they were produced by United Tobacco / Marshall Finest Tobacco / VK Tobacco FZE (17%) and “Ukrainian Tobacco Production” (16%).

On October 5, Danylo Hetmantsev, Chairman of the Verkhovna Rada Committee on Finance, Tax, and Customs Policy, reported that after a three-month hiatus, illegal production had resumed in the western part of the country. In response, the Verkhovna Rada Committee, during its meeting on October 4, issued several instructions to law enforcement agencies. Specifically, the Director of the Economic Security Bureau was tasked with promptly analyzing the cases of illegal activity resumption at tobacco production enterprises, while the leadership of the State Tax Service was instructed to take measures to prevent or revoke licenses for persons known to have committed violations. The National Police and the State Tax Service were also directed to jointly inspect retail outlets selling tobacco products.

Despite effective actions by law enforcement, as of September 2024, the losses to Ukraine’s state budget are estimated at 23 billion UAH. This is happening at a time when the state must increase taxes on compliant businesses to finance defense needs.

The legitimate businesses are extremely concerned about the resumption of illegal tobacco production and urge law enforcement to put an end to these illegal activities. The European Business Association once again highlights the fiscal potential of the shadow sector, particularly the illegal production of excisable goods.

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