Note on tobacco excise tax in Ukraine (2020)

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