Note on tobacco excise tax in Ukraine

Abstract

Ukraine is recognized internationally as having implemented some of the best practices in relation to taxationof tobacco products, particularly cigarettes. In the period of 2008–2018, the Ukrainian Government increasedthe average excise tax on cigarettes from 0.58 to 15.5 Ukrainian hryvnia (‎UAH)‎ per pack, resulting in a 12-foldincrease in tobacco excise revenues and a 40% reduction in the number of daily smokers. In 2017, the UkrainianGovernment adopted a plan to increase excise tax on tobacco by 20% yearly until 2025 to reach the EuropeanUnion minimum excise tax rate and further increase revenues, decrease consumption and reduce tobaccorelatedmortality and morbidity. A simulation exercise was conducted to estimate the increase in revenues forthe period 2020–2025 under the current schedule of increase. This was compared to the assessed impact ofa slower increase in excise taxes, as suggested by the tobacco industry. Results show that revenues from thecurrent schedule will remain substantially larger than those under the industry proposal even if illicit tradedoubled in this period. Excise revenues would reach 102 billion UAH by 2025 under the current schedulecompared to around 68 billion UAH under the industry proposal.