Ukraine records the highest level of illegal cigarette market

18/ 12/ 2023

According to a new study by Kantar, the level of the illegal cigarette market in Ukraine reached 25.7% in 2023 (as of October). Back in June, this figure was 19.5%. Such a percentage of the shadow is an absolute anti-record in the history of research on the illegal trade in Ukraine since 2011. Analyzing the distribution, 11.3% are counterfeit products, 12.9% are products labeled as Duty Free or intended for export that are illegally sold in Ukraine, and 1.5% are smuggled. As a result, state budget losses in 2023 alone amounted to UAH 23.5 billion. These are funds that would have been extremely necessary for the needs of the Armed Forces and the future Victory of Ukraine. 72% of illegal tobacco products labeled as Duty Free or intended for export have an inscription stating that the manufacturer is Vynnyky Tobacco Factory. 62% of this group of illegal products are Compliment cigarettes with Duty Free labeling. The largest distributors of illegal products are kiosks and shops - 39% and 30%. The main regions of distribution are: Dnipro - 17%, Odesa - 12%, Lviv - 9%, Kharkiv - 9%, Khmelnytskyi - 7%, Kirovohrad - 6%, Rivne and Chernivtsi regions - 5% each. The European Business Association has repeatedly emphasized the problem of the shadow economy in Ukraine, which goes far beyond the tobacco industry. However, despite high-profile cases in the media, the situation continues to deteriorate. Moreover, new initiatives are emerging that aim to further increase the fiscal pressure on legal businesses. A striking example is the idea to increase the excise tax on tobacco products by 20% starting in 2024. At the stage of implementation, the business was sympathetic to this idea. However, the situation when fiscal pressure increases only on transparent businesses, while shadow schemes remain untouched, raises deep concerns about the potential for economic growth. In view of the above, the European Business Association once again calls on the Office of the President of Ukraine to pay attention to the situation with the illegal tobacco market and fulfill the promise made to business in the summer to actively fight the shadow. To do this, it is now imperative to maximize the efforts and actions of all responsible law enforcement and regulatory agencies - the Tax Service, the Prosecutors Office, the National Police, the Security Service of Ukraine, and the full reform of the Economic Security Bureau. At the same time, it is also necessary to continue implementing fundamental reforms in the country - effective fight against corruption and establishment of the rule of law in the country, because, in fact, this situation is partly a result of the lack of progress in the context of fundamental reforms. So we sincerely hope that this time the voice of business will be heard!

Analyzing the distribution, 11.3% are counterfeit products, 12.9% are products labeled as Duty Free or intended for export that are illegally sold in Ukraine, and 1.5% are smuggled. As a result, state budget losses in 2023 alone amounted to UAH 23.5 billion. These are funds that would have been extremely necessary for the needs of the Armed Forces and the future Victory of Ukraine.

72% of illegal tobacco products labeled as Duty Free or intended for export have an inscription stating that the manufacturer is Vynnyky Tobacco Factory. 62% of this group of illegal products are Compliment cigarettes with Duty Free labeling.

The largest distributors of illegal products are kiosks and shops – 39% and 30%. The main regions of distribution are: Dnipro – 17%, Odesa – 12%, Lviv – 9%, Kharkiv – 9%, Khmelnytskyi – 7%, Kirovohrad – 6%, Rivne and Chernivtsi regions – 5% each.

The European Business Association has repeatedly emphasized the problem of the shadow economy in Ukraine, which goes far beyond the tobacco industry. However, despite high-profile cases in the media, the situation continues to deteriorate.

Moreover, new initiatives are emerging that aim to further increase the fiscal pressure on legal businesses. A striking example is the idea to increase the excise tax on tobacco products by 20% starting in 2024. At the stage of implementation, the business was sympathetic to this idea. However, the situation when fiscal pressure increases only on transparent businesses, while shadow schemes remain untouched, raises deep concerns about the potential for economic growth.

In view of the above, the European Business Association once again calls on the Office of the President of Ukraine to pay attention to the situation with the illegal tobacco market and fulfill the promise made to business in the summer to actively fight the “shadow”. To do this, it is now imperative to maximize the efforts and actions of all responsible law enforcement and regulatory agencies – the Tax Service, the Prosecutor’s Office, the National Police, the Security Service of Ukraine, and the full reform of the Economic Security Bureau. At the same time, it is also necessary to continue implementing fundamental reforms in the country – effective fight against corruption and establishment of the rule of law in the country, because, in fact, this situation is partly a result of the lack of progress in the context of fundamental reforms. So we sincerely hope that this time the voice of business will be heard!