Business news from Ukraine

The growth of the heated tobacco products market in 2021 has stopped after its growth by 80% in 2020. In the future the market will decline due to an increase in the excise tax on heated tobacco products by 320% from January 1, 2021, Managing Director for Ukraine of international tobacco company Philip Morris Kostas Salvaras has told Interfax-Ukraine.
“In 2020, the heated tobacco products market, according to our estimates, grew by 80%, but after the excise tax was increased by 320% from January 1, 2021 and subsequently the price grew, this indicator first slowed down a lot, and then practically stopped. According to our data, retail prices on tobacco sticks since the beginning of the year [2021] have grown by an average of UAH 13. This is not enough to compensate for even half of the increase in excise duty,” he said.
According to Philip Morris, the state budget receipts from the sale of heated tobacco products in the fourth quarter of 2021 will decrease by 60-70% compared to the same period in 2020. In addition, over the specified period, the company intends to reduce the purchase of excise duty stamps for heated tobacco products by nearly 67%.
“In addition, we have already recorded in Ukraine the first deliveries of smuggled heated tobacco products from neighboring countries, where their prices are lower. On the example of cigarettes, we see: when taxes on nicotine-containing goods grow too sharply, the level of illegal trade begins to rise rapidly. Today, 15.9% of the cigarette market is in the shadows. For comparison: in 2017 this figure was only 2.3%,” Salvaras said.
According to him, in 2021, given the current level of illegal trade in tobacco products, the state will receive less than UAH 13.2 billion in tax receipts.
Philip Morris said that an increase in the illegal trade in tobacco products may also occur in the heated tobacco products category, which will lead to a loss of government income, and smokers will not be able to switch from cigarettes to less harmful tobacco heating systems.
“For example: IQOS, our tobacco heating system, can reduce the amount of pollutants entering the smoker’s body by 90-95% compared to cigarettes. As explained by the FDA after authorization of IQOS sales on the U.S. market as a product with a modified risk, it can have a positive effect on public health in general,” the managing director of Philip Morris said.
According to the company, it proposed to the Ukrainian parliament to reconsider plans to raise excise taxes, delaying the next jump in prices for heating tobacco in the coming years.
“This is a necessary step that will allow consumers and businesses to “digest” the 320% increase and adapt to new conditions. It will also stimulate the attraction of additional investments in this area, which is important both for the country’s economy and for public health – after all, the authorities should be interested in motivating smokers to look for a less harmful alternative to cigarettes,” Salvaras said.