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Illegal tobacco products market share in Ukraine continues to grow, reaching a new maximum

Illegal tobacco products market share in Ukraine continues to grow, reaching a new maximum

Kyiv, November 1, 2022

Kantar Ukraine experts conducted a "Research on the Illegal Trade Market". The research results were presented during a round table on issues of illegal trade of tobacco products organized by AmCham Ukraine with the participation of the "Ukrtyutyun" Association, business representatives, and state authorities. The event was held for the second year in a row and aimed to improve tools for combating the shadow economy.

The real deshadowing of the economy is a direct indicator of the state's ability to create favorable conditions for the development of enterprises that are already conducting their economic activities in Ukraine and for attracting new investments due to the improvement of the business climate.

One of the components of Ukraine's shadow economy is the illegal production and circulation of tobacco products, which harms law-abiding businesses and the country's economy, as well as distorts competition. Therefore, it is extremely important for AmCham Ukraine member companies to effectively fight against the illegal trade of excisable goods.

The presented research is aimed at identifying and monitoring illegal tobacco products in Ukraine. The experts determined that the share of illegal tobacco products in the total volume of the market in Ukraine increased to 21.9% in 2022, while in 2021, it was 16.9%, and in 2020 it was 6.9%. This trend has been observed since 2016.

According to the data, the share of illegal tobacco products in Ukraine continues to grow because of products marked Duty Free or for export that are sold illegally in Ukraine. Namely, as of August 2022, the share of such illegal products is 12.2%. The share of counterfeit products is 8%, and contraband products - 1.8%.

According to Kantar's calculations, tax losses to the budget of Ukraine in 2022 from the illegal tobacco market are estimated at UAH 20,654,554,000.

Illegal circulation of tobacco products leads to underpayment of taxes to the budget system, violation of fair competition on the market, financing of hybrid aggression, and corruption. Dnipropetrovsk region (20%), Odesa region (13%), Kyiv city (8%), Kharkiv region (8%), Khmelnytskyi region (7%), Lviv region (7%) as well as the Kyiv region (6%) are the leaders among the regions with the largest distribution of illegal products. Temporarily occupied territories of Ukraine and territories where active hostilities are ongoing did not participate in the study.

The event was attended by AmCham Ukraine Solid Excisable Goods Task Force members, which year after year are among the top largest taxpayers in Ukraine - Philip Morris Ukraine, B.A.T. - Prylucky Tobacco Company, JTI Ukraine, Imperial Tobacco Ukraine. Namely, their representatives Maksym Barabash, General Manager, Philip Morris Ukraine, Svitlana Sharamok, General Manager, JTI Ukraine, Yevhen Kobets, General Manager, Imperial Tobacco Ukraine, Yuriy Rylach, Head of Corporate and Legal Affairs Department, B.A.T. - Prylucky Tobacco Company.

The following guests also participated in the event:

  • MP Danylo Hetmantsev, Head of the Verkhovna Rada of Ukraine Committee on Financial Issues, Tax and Customs Policy;
  • MP Halyna Yanchenko, Head of the Temporary Special Commission of the Verkhovna Rada of Ukraine on the Protection of Investors' Rights, Secretary of the National Investment Council under the President of Ukraine;
  • MP Yaroslav Zheleznyak, First Deputy Head of the Verkhovna Rada of Ukraine Committee on Financial Issues, Tax and Customs Policy;
  • Oleksii Boniuk, Head of the Department of Criminal and Legal Policy, Prosecutor General's Office;
  • Oleksiy Yelkhin, Deputy Head of the Strategic Investigations Department of the National Police of Ukraine;
  • Volodymyr Pryshchepa, Deputy Head of the Main Operational Department of the State Bureau of Investigation;
  • Oleksandr Yarmolenko, Director of the Excisable Product Control Department of the State Tax Service of Ukraine;
  • Oleksiy Kalinovych, Acting Director of the Department for Combating Smuggling and Customs Violations of the State Customs Service;
  • Oleksandr Kucherenko, Deputy Director of Economic Security Bureau of Ukraine;
  • Taras Tymoshchuk, Head of the Central Directorate, Security Service of Ukraine.

"The war, inflation, and the drop in citizens' incomes only accelerated the growth of the illegal tobacco market in Ukraine. From each illegal pack of cigarettes, the State Budget does not receive UAH 44. For the year 2022, the total estimate of State Budget losses already amounts to UAH 20.6 billion. Therefore, it is extremely important to start a systematic fight against the illegal tobacco business right now," mentioned Maksym Barabash, GM, Philip Morris Ukraine.

“Countering illegal turnover of tobacco products belongs to the competence of several regulatory and law enforcement agencies. However, due to the unclear division of powers, these agencies do not always work in a coordinated manner and sometimes even compete with each other. Therefore, we ask to create a joint working group with a coordination center in the Office of the President. We also believe that the indicator of the effectiveness of the work of such a group should not be the number of raids or confiscated cigarettes but a real decrease in the level of illegal turnover - to a certain established indicator for a certain period,” highlighted Svitlana Sharamok, GM, JTI Ukraine;

"AmCham Ukraine member companies believe in Ukraine, continue operating, paying taxes, keep Ukrainians employed, and ready to actively participate in Ukraine's post-war economic rebuilding. There are a number of discussions between the state and international partners about plans for Ukraine's reconstruction. Therefore, it is essential to put maximum effort now to ensure an attractive investment climate and guarantee a level playing field. Effective communication and coordination between all involved state authorities and businesses are critical for implementing effective measures to combat the illegal turnover in tobacco products," Andy Hunder, President of the American Chamber of Commerce in Ukraine.

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