The situation on the market of illegal tobacco products remains critical

16/ 05/ 2023

Today, in these extremely challenging times for Ukraine and its economy, the issue of the shadow economy, unfortunately, remains a painful one. And the most indicative case in this regard is the market of the illegal tobacco trade. The European Business Association has repeatedly emphasized this, and the recent study by KANTAR Ukraine vividly demonstrates this. In February 2023, the level of illegal tobacco products reached 20.2%, indicating that the overall trend has remained almost unchanged compared to the previous years figures. For instance, a study conducted last year in August showed that the shadow economy in the industry reached a record high of 21.9%. Therefore, there is no observable global trend toward reducing this economically destructive phenomenon in 2023. In 2020, the annual average volume of the illicit cigarette market in Ukraine stood at 6.9%, which was already a significant problem and loss for the state budget. If we convert the percentage indicators into actual figures, the Ukrainian budget loses 22 billion UAH a year in unpaid taxes from the illegal tobacco market. It is simply an astronomical amount, considering the full-scale war and the countrys needs for financing and approaching our Victory. According to the results, the largest share of the illegal market is occupied by products labeled as Duty-Free or intended for export but illegally sold in Ukraine - accounting for 10.8%. Additionally, counterfeit products or excise stamps (counterfeit) constitute 7.9%, and smuggling accounts for 1.5%. Among the central distribution channels for illegal products, kiosks and stores occupy the top positions, accounting for 35% and 33%, respectively, among all distribution points. Street vendors account for 19% of sales, while open markets contribute 10% of the distribution. When considering the geography of the distribution of illegal goods, the absolute record holder is the Dnipropetrovsk region, where 14% of the distribution occurs. In Kharkiv, Odesa, and Lviv regions, this indicator stands at 9% each. Anna Derevyanko. Executive Director of the European Business Association. The situation in the country is not easy, indeed. And yes, many tasks require the attention of the authorities and various government bodies. However, there should still be prioritization. The fight against the shadow economy, in the context of economic recovery, should be at the top. Because when, on the one hand, you see similar results, or rather, their absence in addressing the issue of combating the shadow economy, and on the other hand, you hear in business circles about increased pressure from law enforcement agencies, specifically on transparent businesses, it raises a lot of rhetorical questions about what we, as a country, can achieve by following such a course. In particular, it is unlikely to help attract new investments. Besides security risks, there are also internal risks. Therefore, the European Business Association emphasizes that with such critical indicators of the shadow economy, law enforcement agencies need to intensify their efforts and put forth maximum effort to improve the situation in the country. And it is not about a single agency - in this situation, all responsible law enforcement structures should move collectively, united front, to address this massive problem. At the same time, it seems appropriate for the Office of the President of Ukraine to take personal control of the shadow economy situation and monitor the effectiveness and results of this fight. After all, it directly affects the countrys reputation, and we must not allow it to deteriorate in any way.

In February 2023, the level of illegal tobacco products reached 20.2%, indicating that the overall trend has remained almost unchanged compared to the previous year’s figures. For instance, a study conducted last year in August showed that the shadow economy in the industry reached a record high of 21.9%. Therefore, there is no observable global trend toward reducing this economically destructive phenomenon in 2023. In 2020, the annual average volume of the illicit cigarette market in Ukraine stood at 6.9%, which was already a significant problem and loss for the state budget.

If we convert the percentage indicators into actual figures, the Ukrainian budget loses 22 billion UAH a year in unpaid taxes from the illegal tobacco market. It is simply an astronomical amount, considering the full-scale war and the country’s needs for financing and approaching our Victory.

According to the results, the largest share of the illegal market is occupied by products labeled as Duty-Free or intended for export but illegally sold in Ukraine – accounting for 10.8%. Additionally, counterfeit products or excise stamps (counterfeit) constitute 7.9%, and smuggling accounts for 1.5%.

Among the central distribution channels for illegal products, kiosks and stores occupy the top positions, accounting for 35% and 33%, respectively, among all distribution points. Street vendors account for 19% of sales, while open markets contribute 10% of the distribution.

When considering the geography of the distribution of illegal goods, the absolute record holder is the Dnipropetrovsk region, where 14% of the distribution occurs. In Kharkiv, Odesa, and Lviv regions, this indicator stands at 9% each.

Anna Derevyanko Executive Director of the European Business Association

The situation in the country is not easy, indeed. And yes, many tasks require the attention of the authorities and various government bodies. However, there should still be prioritization. The fight against the shadow economy, in the context of economic recovery, should be at the top. Because when, on the one hand, you see similar results, or rather, their absence in addressing the issue of combating the shadow economy, and on the other hand, you hear in business circles about increased pressure from law enforcement agencies, specifically on transparent businesses, it raises a lot of rhetorical questions about what we, as a country, can achieve by following such a course. In particular, it is unlikely to help attract new investments. Besides security risks, there are also internal risks.

Therefore, the European Business Association emphasizes that with such critical indicators of the shadow economy, law enforcement agencies need to intensify their efforts and put forth maximum effort to improve the situation in the country. And it is not about a single agency – in this situation, all responsible law enforcement structures should move collectively, united front, to address this massive problem. At the same time, it seems appropriate for the Office of the President of Ukraine to take personal control of the shadow economy situation and monitor the effectiveness and results of this fight. After all, it directly affects the country’s reputation, and we must not allow it to deteriorate in any way.