In order to continue searching for effective mechanisms and steps to reduce the shadow economy, the American Chamber of Commerce in Ukraine (AmCham) held a roundtable discussion with representatives of the U.S. Embassy, MPs, representatives of state authorities, including law enforcement agencies, and business.
During the round table the following issues were discussed: shadow markets for tobacco products, fixed-line Internet providers, and consumer electronics.
The situation with the illegal production and distribution of tobacco products in Ukraine has attracted the attention of Europol - Howard Pugh, Former Head of the Excise Fraud Unit at Europol, joined the roundtable and called for a continued fight against the largest illegal cigarette producers in Ukraine and emphasized that “illegal cigarettes are a threat to national security. The political will to fight illegal tobacco production and trade is absolutely essential. The huge amounts of lost revenue could be used to provide important public services. Public demand can only be reduced when people realize that consumption of illicit products directly finances organized criminal groups.”
Kantar Ukraine presented the “Research on Illicit Trade Market h” which is aimed at identifying and monitoring illegal tobacco products in Ukraine.
The illicit production and distribution of tobacco products are among the key elements within Ukraine's shadow economy, which inflicts harm upon lawful businesses, leads to a shortfall in taxes to the State Budget of Ukraine, and disrupts fair competition in the market. According to Kantar's preliminary calculations, tax losses to Ukraine’s State Budget in 2024 from the illegal tobacco market are estimated at UAH 23 billion.
According to the research, as of July 2024, the level of illegal tobacco products in Ukraine has decreased compared to the previous period (April 2024). Thus, the share of illegal Duty-Free products is 5.1%, while in April it was 5.7%. The share of counterfeit products is 8.1% (10.1% in April), and smuggled products - 1.4% (2.2% in April).
The size of the shadow market is still significant and combating it requires coordinated and coherent work of all responsible state authorities. The main goal is to maintain the positive dynamics of reducing the illegal production and sale of tobacco products and prevent a return to their growth.
In addition, the participants of the round table discussed the issue of the shadow in the fixed Internet access market. According to the study “Peculiarities of Taxation of Fixed Internet Access Services in Ukraine” conducted by the Growford Institute, there is a trend of increasing both the number and share of business entities with the status of individual entrepreneurs in this segment of the economy. Economic entities using the simplified taxation system (individual entrepreneurs and LLCs) received 35.6% of the total revenue from the provision of fixed Internet access services in 2019 and 47.2% in 2023.
Eliminating the existing tax optimization mechanisms in the fixed Internet access market under a conservative scenario, according to the Growford Institute, could generate an additional UAH 1.6 billion in tax revenues, and according to some estimates, UAH 3 billion. Business welcomes the government's steps to establish equal taxation rules for all taxpayers.
At the same time, AmCham member companies drew attention to the share of the shadow consumer electronics market. The shadow electronics market is a segment where sales are made for cash or cryptocurrency without accounting and corresponding tax payment. The goods are imported into Ukraine without paying VAT and import duties. The bulk of the shadow market is made up of expensive and small-sized goods, such as smartphones, laptops, watches, headphones, and premium small and large appliances.
For example, in 2023, the share of the shadow market for Apple iPhone products alone, according to AmCham member companies, amounted to 71%, resulting in Ukraine losing UAH 5.5 billion (over USD 135 million) due to non-payment of VAT. At the same time, losses due to non-payment of VAT on other Apple products (MacBook, iPad, AppleWatch, Airpods, etc.) are estimated at UAH 10 billion.
In September, Apple presented its new products, including the new iPhone 16 line. Between September 20 and 28, about 8,200 iPhone 16 were illegally imported into Ukraine. The State Budget of Ukraine lost UAH 1.1 billion in the 3rd quarter of 2024 from non-payment of VAT on illegally imported and sold iPhones. Businesses note some positive changes in the fight against violations of the law in this area, but given the significant damage to the budget, these changes are currently insufficient.
The event was attended by AmCham member companies, representatives of the U.S. Embassy, MPs, representatives of state authorities. In particular:
- Dorian Mazurkiewicz, U.S. Embassy;
- Abigail Rockwell, U.S. Embassy;
- Maria Davydenko, U.S. Embassy;
- MP Danylo Hetmantsev, Head of the Verkhovna Rada of Ukraine Committee on Financial Issues, Tax and Customs Policy;
- Oleksii Ustenko, MP, Head of the Subcommittee on Rent Payments, Environmental Tax, and Taxation of the Agro-Industrial Complex of the VRU Committee on Financial Issues, Tax and Customs Policy;
- Denys Maslov, MP, Head of the VRU Committee on Legal Policy;
- Halyna Yanchenko, MP, Head of the VRU Temporary Special Commission on Protection of Investors' Rights;
- Olelsandr Fedienko, MP, Head of the VRU Subcommittee on Cybersecurity, Government Communications, and Cryptographic Information Protection of the VRU Committee on National Security, Defense, and Intelligence;
- Oleksiy Bonyuk, Head of the Department of Criminal Legal Policy and Investment Protection of the Prosecutor General's Office;
- Ivan Pysarchuk, Police Colonel, Deputy Head of the Department - Head of the 2nd Division of the 8th Directorate of the Cyber Police Department of the National Police of Ukraine;
- Viktor Bayov, Lieutenant Colonel of Police, Head of the 1st Division of the Cyber Police Department of the National Police of Ukraine;
- Maksym Ubozhenko, Police Captain, Head of the 1st Division of the Cyber Police Department of the National Police of Ukraine;
- Oleksiy Kalynovych, Acting Director of the Department for Combating Smuggling and Customs Violations of the State Customs Service;
- Kristina Adamchuk, Director of the Tax Audit Department of the State Tax Service of Ukraine;
- Elina Demina, Acting Director of the Department of Taxation of Legal Entities, State Tax Service of Ukraine.
