Amendment to withdraw old excise tax stamps from circulation threatens legal businesses with billions in losses

20/ 02/ 2024

Soon, the Verkhovna Rada plans to consider in the second reading Draft Law No. 9662, which contains provisions that may significantly negatively impact the legal market of excisable goods. In particular, it concerns amendment No. 161 to the draft law, which bans the production and circulation of tobacco products and alcoholic beverages marked with excise stamps of the previous model from June 1 and September 1, 2024, respectively. Earlier, this amendment was supported by the Parliamentary Committee on Finance, Taxation, and Customs Policy. If the draft law with this amendment passes, the excisable products it defines will be deemed unlabeled after the transition period ends, subjecting their production and circulation to sanctions. The business emphasizes that amendment No. 161 does not create an effective mechanism for combating counterfeit excise stamps but is only an ineffective attempt to address the complex problem of the shadow market for excisable goods. Legitimate businesses are not offered anything else but to withdraw from circulation and destroy at their own expense their own legally produced, imported, or purchased for further sale quality products, on which all taxes have been paid and which, according to the law, should be in circulation until the expiration date. The business notes that the complete withdrawal of such products from circulation would create exorbitant logistical difficulties. Moreover, these products are technologically not subject to relabeling, as each label is affixed in such a way that it cannot be removed without damaging the packaging, and foreign-made products are generally labeled exclusively by foreign companies abroad. In most cases, these products cannot be industrially processed. As a result, the estimated business losses from the adoption of the amendment will amount to tens of billions of hryvnias. The amendment does not provide for state compensation for the relevant losses of legal market operators. Instead, such an initiative will not stop the circulation of already manufactured products labeled with counterfeit excise stamps on the illegal market. Shadow market players who already have access to the newly designed stamps will quickly set up the production of counterfeit stamps. The adoption of the amendment will not hinder the sale of illegal products from under the counter, via the Internet, etc. According to representatives of legal businesses, if this amendment is not rejected, there is a high probability of additional growth in the supply of illegal products on the gray market. Meanwhile, businesses operating in the legal field will suffer losses due to the shortage of legal goods. Trade enterprises will be forced to refuse to purchase products with previous model brands from manufacturers and importers to minimize losses. In addition, counterfeiting is not the main problem in the market. For example, according to KANTAR Ukraine, 2/3 of the shadow cigarette market is made up of products that do not have excise stamps. The European Business Association, the Ukrainian Food Retail Alliance, the Association Ukrtyutyun and the Association Ukrvodka urge the Parliament to reject amendment No. 161 to the draft law No. 9662, which shifts responsibility for offenses committed by players in the shadow market of excisable goods to legal businesses and leads to financial and operational losses due to the inability of the state to effectively address the long-standing problem of illegal trafficking of excisable goods.

The business emphasizes that amendment No. 161 does not create an effective mechanism for combating counterfeit excise stamps but is only an ineffective attempt to address the complex problem of the shadow market for excisable goods. Legitimate businesses are not offered anything else but to withdraw from circulation and destroy at their own expense their own legally produced, imported, or purchased for further sale quality products, on which all taxes have been paid and which, according to the law, should be in circulation until the expiration date. The business notes that the complete withdrawal of such products from circulation would create exorbitant logistical difficulties. Moreover, these products are technologically not subject to relabeling, as each label is affixed in such a way that it cannot be removed without damaging the packaging, and foreign-made products are generally labeled exclusively by foreign companies abroad. In most cases, these products cannot be industrially processed. As a result, the estimated business losses from the adoption of the amendment will amount to tens of billions of hryvnias. The amendment does not provide for state compensation for the relevant losses of legal market operators.

Instead, such an initiative will not stop the circulation of already manufactured products labeled with counterfeit excise stamps on the illegal market. Shadow market players who already have access to the newly designed stamps will quickly set up the production of counterfeit stamps. The adoption of the amendment will not hinder the sale of illegal products from under the counter, via the Internet, etc.

According to representatives of legal businesses, if this amendment is not rejected, there is a high probability of additional growth in the supply of illegal products on the gray market. Meanwhile, businesses operating in the legal field will suffer losses due to the shortage of legal goods. Trade enterprises will be forced to refuse to purchase products with previous model brands from manufacturers and importers to minimize losses. In addition, counterfeiting is not the main problem in the market. For example, according to KANTAR Ukraine, 2/3 of the shadow cigarette market is made up of products that do not have excise stamps.

The European Business Association, the Ukrainian Food Retail Alliance, the Association “Ukrtyutyun” and the Association “Ukrvodka” urge the Parliament to reject amendment No. 161 to the draft law No. 9662, which shifts responsibility for offenses committed by players in the shadow market of excisable goods to legal businesses and leads to financial and operational losses due to the inability of the state to effectively address the long-standing problem of illegal trafficking of excisable goods.