The legal cigarette market in Ukraine has been shrinking by 10-15% annually over the past two years, while the illegal market has been growing. This dramatic situation is unprecedented, said Maxim Barabash, CEO of Philip Morris Ukraine, to the Interfax-Ukraine news agency.
“What has been happening over the past two years? Due to the growth of the illegal market, the rate of decline in the legal market is simply incredible: Ukraine has never seen the legal cigarette market shrink by 10-15% per year,” he said on the sidelines of the Ukrainian Breakfast in Davos, organized by the Pinchuk Foundation on the margins of the World Economic Forum.
Barabash noted that consumers are switching to the illegal market because the difference in price between legal and illegal products has grown significantly in recent years due to increases in excise taxes.
“70% of the cigarette market is the low-price segment. These are people who come to the point of sale and ask: give me the cheapest cigarettes. Today, they get illegal cigarettes for 70-78 UAH (per pack), when according to the law, cigarettes cannot cost less than 125 UAH today,” explained the CEO of Philip Morris Ukraine.
He specified that from January 1, 2026, due to the next indexation of excise taxes, legal cigarettes will rise in price by 15-17% in hryvnia.
The CEO noted that for Philip Morris Ukraine, this means that at the factory in the Lviv region, which opened two years ago to replace the factory near Kharkiv, whose operations were halted on the first day of Russia’s full-scale aggression in February 2022, some of the five installed lines are underloaded, and plans to expand production with three more lines are meaningless.
“Conditionally, a 15% drop (in the market) means that one line can be closed. And we do not see any positive movement at all, any hope that something positive will happen in the fight against illegal products. I think this will be the main problem for the industry,” Barabash described the situation.
According to rough estimates by Mikhail Polyakov, Deputy Director General for Corporate Relations at Philip Morris Ukraine, the excise revenue plan for 2025 will fall short by at least UAH 7 billion, and this year’s plan of UAH 140 billion will fall short by at least UAH 10 billion if the situation remains unchanged.
“Excise tax is a consumption tax. If a legal product is not consumed, there is no excise tax. We think that at some point there will be a boiling point when they will start to fight (the illegal market). It may just be a little too late, and it will be impossible to defeat it at all,” emphasized the CEO of Philip Morris Ukraine.
According to him, in the current situation, a line worth several million dollars established on the illegal market can pay for itself in a week, and with the increase in excise taxes in accordance with the approved indexation calendar without intensifying the fight, this profitability will only grow, “so the only (solution) is a very serious fight, political will, which is currently lacking.”
Polyakov, in turn, added that recently, the channels for supplying illegal products to the market have diversified due to Telegram channels and online sales.
“There are a lot of Telegram channels and online sales. Appealing to law enforcement agencies does not allow these Telegram channels to be closed. How does it work? A person places an order through a Telegram channel and receives it by mail. It is declared as souvenirs or other products – the sender does not indicate that these are cigarettes,” explained the deputy general director for corporate communications.
Philip Morris Ukraine (PMU) has been operating in the Ukrainian market since 1994. In 2024, the company opened a new factory in the Lviv region with a declared investment of $30 million, to which 250 employees from the Kharkiv factory were transferred.
Last Friday, January 30, the company reported a Russian missile strike that damaged part of the company’s Kharkiv factory.
According to data from YouControl, in the first nine months of 2025, Philip Morris Ukraine’s revenue decreased by 13.3% to UAH 14.23 billion.
