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Tobacco products’ illegal market has resumed its growth trend

Tobacco products’ illegal market has resumed its growth trend

Kantar Ukraine present the latest "Research on the Illegal Trade Market". The results were presented during the round table organized by the American Chamber of Commerce in Ukraine with the participation of the "Ukrtyutyun" Association, business representatives, and state authorities. The event was held for the third year in a row and aimed at improving tools for combating the shadow economy.

The illicit production and distribution of tobacco products are among the key elements within Ukraine's shadow economy, inflicting harm upon lawful businesses, distorting competition, and adversely impacting the country's economy. Consequently, it becomes of utmost significance for AmCham Ukraine member companies to actively combat the illicit trade of excisable goods in an effective manner.

A clear understanding of the illegal trade level is important for assessing the effectiveness of existing tools for combating and their improvement.

 The research is aimed at identifying and monitoring illegal tobacco products in Ukraine. Kantar determined that the share of illegal tobacco products in the total volume of the market in Ukraine marked 20.2% in 2023, while in 2021, it was 16.9%, and in 2020 it was 6.9%. This trend has been observed since 2016. The growth occurred due to an increase in the share of counterfeit products to 7.9% and a high level of Duty-Free labeled products to 10.8%.

According to the data, brands of international tobacco companies make up 83% of the volume of counterfeit products. The other 17% (according to the inscription on the pack) is produced by “Ukrainian Tobacco Production” and United Tobacco.

As of February 2023, the share of illegal Duty-Free products is 10.8%. The share of counterfeit products is 7.9%, and contraband products – 1.5%.

According to Kantar’s preliminary calculations, the tax losses to Ukraine’s State Budget in 2023 from the illegal tobacco market are estimated at UAH 22 billion.

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 (14%), Odesa region (9%), Kharkiv region (9%), Lviv region (9%), Khmelnytskyi region (7%), Kirovohradsk region (8%), Chernivtsi region (7%), Khmelnytskyi region (6%), and Poltava region (6%) are the leaders among the regions with the largest distribution of illegal products, which is 68% of the total volume of illegal production. 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, who are year after year among the top largest taxpayers in Ukraine - Philip Morris Ukraine, B.A.T. - Prylucky Tobacco Company, JTI Ukraine, Imperial Tobacco Ukraine.

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 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;
  • Ivan Pysarchuk, Ministry of Internal Affairs of Ukraine;
  • Rostyslav Pekar, Head of the Main Operational Department of the State Bureau of Investigation;
  • Eleonora Shkoda, Director of the Excisable Product Control Department of the State Tax Service of Ukraine and Andriy Chygorskykh, Head of Unit of the Excisable Product Control Department of the State Tax Service;
  • Oleksiy Kalynovych, Acting Director of the Department for Combating Smuggling and Customs Violations of the State Customs Service;
  • Viktor Lysenko, Head of the Detective Division, of Economic Security Bureau of Ukraine;
  • Taras Tymoshchuk, Head of the Central Directorate, Security Service of Ukraine.

"We are grateful for the proactive measures undertaken by law enforcement agencies in Ukraine to combat the illegal production of tobacco products, and we support efforts aimed at identifying and shutting down of factories that counterfeit products of world brands. At the same time, reducing the share of the illegal market is possible only if there is a systematic fight against illegal trade throughout the chain of production, supply, and sale of illegal cigarettes: it is necessary to systematically check the operation of sales points and block attempts to sell illegal products through websites, groups in social networks and messengers”, Maksym Barabash, General manager of Philip Morris Ukraine.

“Since 2017, we observe how the excise duty rates for tobacco products increase almost simultaneously with the share of the illicit market. But despite this trend and the war, we see numerous calls to increase tobacco rates to cover the necessary budget expenses. We are convinced: until the infrastructure of the illegal tobacco market is severely disrupted, making its further expansion impossible, the increase of excise duty rates should be postponed," admitted Svitlana Sharamok, General Manager of JTI Company.

"In 2019, we launched AmCham Ukraine Solid Excisable Goods Task Force, which unites companies that are among the largest taxpayers in Ukraine. In 2022, these companies together paid more than UAH 78 billion in taxes. That is why it is important for us to ensure equal and fair working conditions of the industry. Systematic monitoring of the level of illegal trade is important for assessing the effectiveness of existing tools for combating and their improvement," commented Andy Hunder, President of the American Chamber of Commerce in Ukraine.

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