The Government introduced a new excise stamp standard without business approval

20/ 06/ 2023

On June 19, the Government adopted Resolution No. 618 on labeling alcoholic beverages, tobacco products, and liquids used in electronic cigarettes. According to this decision, starting September 1, 2023, Ukraine will introduce excise tax stamps on alcoholic beverages and tobacco products of a new standard featuring an additional protective holographic element. The draft resolution was not previously published for public discussion, depriving alcohol and tobacco producers, importers, and sellers of the right to express their position regarding the feasibility of adopting this document. The new stamp introduction does not align with the overall strategy for regulating excise stamps, featured in draft law No. 8287, adopted in the first reading in January 2023. The draft law proposes the introduction of a graphic element for electronic excise stamps without any holographic protection starting in 2026. Introducing a new excise stamp standard by the end of 2023 is entirely inconsistent, and the state policy on this matter is unpredictable. Moreover, without the Government ensuring the effectiveness of controlling the circulation of excisable goods, it will have no positive impact on combating the illicit market. It should be noted that in 2020, new excise tax stamps were already introduced. At that time, the Printing Plant Ukraine was responsible for producing and delivering the new stamps to the sellers, while the old stamps were to be collected and destroyed. However, despite numerous appeals, including those from the Association to the government authorities, free exchange was never implemented. According to the data provided by member companies of the Wine and Spirits Committee of the Association, businesses incurred a cost of over 1 million UAH as they couldnt replace around 6,153,000 stamps. It is also worth noting that the holographic protective element for excise tax stamps was previously used but was removed by a Government decision in 2012. The removal occurred because such a protective element significantly increased the cost of the excise tax stamps but did not contribute to combating the illicit trade of excisable products. Similarly, businesses currently see no reason to believe that reintroducing the holographic protective element will contribute to combating illegal circulation. As noted by experts from the Wine and Spirits Committee of the Association, Ukraine already has an adequate number of procedures, mechanisms, and tools to detect illegal alcohol and address the issue of its illicit trade, which are unrelated to changes in the standard or protective elements of the excise stamp. Businesses argue that combating the illegal alcohol market can be achieved through privatizing state-owned distilleries, stopping illegal production, and closely monitoring legal alcohol producers to control expenses and prevent the production of unaccounted-for alcohol. From the perspective of the tobacco industry, it is crucial to highlight that additional protective elements on excise tax stamps will not yield the desired results in combating the illegal market. For instance, in February 2023, KANTAR Ukraines study found that illicit cigarettes accounted for 20.2% of the total market volume. Moreover, over 60% of these illegal products lack excise stamps. This includes products labeled for sale in duty-free shops or for export to other countries, accounting for 10.8% of the market share, as well as cigarettes illegally imported into Ukraine from other countries (primarily Belarus, Moldova, and Serbia), estimated to make up 1.5% of the total market volume. Thus, counterfeit stamps are neither the sole nor the primary factor influencing the dynamics of the illegal tobacco market. Therefore, eliminating this factor, which cannot be accomplished by introducing an additional holographic protective element for excise stamps, will not be a crucial step in resolving the issue. Furthermore, changing the standard of excise stamps and introducing an additional protective element poses the risk of altering physical parameters that can directly impact the technological process of applying the stamps, such as size or the need for different adhesives. In the high-speed tobacco production environment, such changes would require equipment reconfiguration, which is technologically complex and time-consuming, potentially leading to temporary production suspensions. Consequently, the decision of the Government to introduce new excise stamps is considered inconsistent and ineffective by the EBA. As a result, it will increase the expenses of legitimate businesses instead of effectively combating the illegal market.

The draft resolution was not previously published for public discussion, depriving alcohol and tobacco producers, importers, and sellers of the right to express their position regarding the feasibility of adopting this document.

The new stamp introduction does not align with the overall strategy for regulating excise stamps, featured in draft law No. 8287, adopted in the first reading in January 2023. The draft law proposes the introduction of a graphic element for electronic excise stamps without any holographic protection starting in 2026. Introducing a new excise stamp standard by the end of 2023 is entirely inconsistent, and the state policy on this matter is unpredictable. Moreover, without the Government ensuring the effectiveness of controlling the circulation of excisable goods, it will have no positive impact on combating the illicit market.

It should be noted that in 2020, new excise tax stamps were already introduced. At that time, the Printing Plant “Ukraine” was responsible for producing and delivering the new stamps to the sellers, while the old stamps were to be collected and destroyed. However, despite numerous appeals, including those from the Association to the government authorities, free exchange was never implemented. According to the data provided by member companies of the Wine and Spirits Committee of the Association, businesses incurred a cost of over 1 million UAH as they couldn’t replace around 6,153,000 stamps.

It is also worth noting that the holographic protective element for excise tax stamps was previously used but was removed by a Government decision in 2012. The removal occurred because such a protective element significantly increased the cost of the excise tax stamps but did not contribute to combating the illicit trade of excisable products. Similarly, businesses currently see no reason to believe that reintroducing the holographic protective element will contribute to combating illegal circulation.

As noted by experts from the Wine and Spirits Committee of the Association, Ukraine already has an adequate number of procedures, mechanisms, and tools to detect illegal alcohol and address the issue of its illicit trade, which are unrelated to changes in the standard or protective elements of the excise stamp. Businesses argue that combating the illegal alcohol market can be achieved through privatizing state-owned distilleries, stopping illegal production, and closely monitoring legal alcohol producers to control expenses and prevent the production of unaccounted-for alcohol.

From the perspective of the tobacco industry, it is crucial to highlight that additional protective elements on excise tax stamps will not yield the desired results in combating the illegal market. For instance, in February 2023, KANTAR Ukraine’s study found that illicit cigarettes accounted for 20.2% of the total market volume. Moreover, over 60% of these illegal products lack excise stamps. This includes products labeled for sale in duty-free shops or for export to other countries, accounting for 10.8% of the market share, as well as cigarettes illegally imported into Ukraine from other countries (primarily Belarus, Moldova, and Serbia), estimated to make up 1.5% of the total market volume.

Thus, counterfeit stamps are neither the sole nor the primary factor influencing the dynamics of the illegal tobacco market. Therefore, eliminating this factor, which cannot be accomplished by introducing an additional holographic protective element for excise stamps, will not be a crucial step in resolving the issue.

Furthermore, changing the standard of excise stamps and introducing an additional protective element poses the risk of altering physical parameters that can directly impact the technological process of applying the stamps, such as size or the need for different adhesives. In the high-speed tobacco production environment, such changes would require equipment reconfiguration, which is technologically complex and time-consuming, potentially leading to temporary production suspensions.

Consequently, the decision of the Government to introduce new excise stamps is considered inconsistent and ineffective by the EBA. As a result, it will increase the expenses of legitimate businesses instead of effectively combating the illegal market.