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.
Philip Morris Ukraine has opened a new modern shelter on the territory of its factory in the Lviv region, in which it has invested about UAH 60 million, according to a press release from the company.
“In the current circumstances, the safety of our people is not just a requirement of the times, but also our responsibility. (…) We continue to invest in Ukraine, and these investments demonstrate our long-term strategy as an investment ambassador and our support for the economy in the context of martial law,” said Maxim Barabash, CEO of the company.
The shelter is designed for 170 people and will provide protection for both factory workers and local residents during air raids or emergencies. It fully complies with all applicable safety requirements and standards and is designed to provide comfortable accommodation for people for up to 48 hours.
The space is equipped with a ventilation system using explosion-proof valves and air conditioning, an alarm and fire extinguishing system with backup power supply, a water supply and sewage system, a heating system, radio broadcasting, telephone communication, and video surveillance, places for rest and seating, and water and food supplies for long stays. The shelter takes into account the needs of people with disabilities. The premises include a medical corner, sanitary facilities, shower rooms, and a kitchen area.
Construction of the shelter began in September 2024 after the launch of the factory, in which the company invested $30 million. Prior to this, employees used a modernized shelter on the territory of the Lviv city community, in which the company invested about UAH 1.3 million.
Philip Morris was spun off from Altria in 2008 and is one of the world’s largest tobacco manufacturers. The company’s revenue for 2023 increased by 10.7% compared to 2022, to $35.2 billion. The report noted that Ukraine accounted for about 2% of total sales in volume terms and 1% in monetary terms.
In 2022, PMI reduced shipments to the Ukrainian market by 30.1% to 11.07 billion cigarettes and tobacco sticks due to the war, but in 2023, it managed to increase shipments of finished products by 8.4%, including 14.9% in the fourth quarter. In October 2023, the company announced that it had restored its share of the Ukrainian market to 24%. In 2024, Ukraine’s figures were excluded from PMI’s quarterly reports.
In addition to cigarette production, PMI develops and manufactures smokeless products—electrically heated tobacco products (e-cigarettes), nicotine-containing POD systems, and nicotine products for oral use. Sales of smokeless products accounted for 39% of PMI’s total net income in the first quarter of 2024 and 38% in the third quarter.
Philip Morris Ukraine has been operating in the Ukrainian market since 1994 and has invested over $750 million in the Ukrainian economy during this time. Since the start of the full-scale invasion, it has allocated over UAH 400 million to humanitarian projects.
Philip Morris International (PMI) in January-June 2024 increased tax deductions to budgets of different levels by 33.5%, or UAH 6 billion, compared to the same period of 2023 – up to UAH 23.9 billion, the company said in a press release on Wednesday.
“Important factors for the increase in tax deductions were the recovery of the company’s share in the Ukrainian market, as well as the launch of a new factory, in which the company invested $30 million,” PMI Ukraine CFO Sergiy Kalnoochenko is quoted in the release.
It is specified that excise tax accounted for UAH 12 bln, VAT – UAH 3.2 bln.
Last year PMI reported on payment of 30.3 billion UAH of taxes in Ukraine.
Kralnoochenko added that the growth of tax payments was also facilitated by the increase in the legal tobacco market, which became possible due to the active struggle of state authorities with illegal producers.
According to him, Philip Morris will continue to invest in the development of its own business, as a result of which in August 2024 it plans to pay to the budget more than 3.5 billion hryvnias of excise tax alone as part of direct production at the newly opened factory in Lviv region and its own imports, as well as under a local contract for contract manufacturing.
Philip Morris was spun off from Altria in 2008 and is among the world’s largest tobacco manufacturers, declaring the goal of full transition to smokeless products in the future.
PMI has been operating in the Ukrainian market since 1994, and during this time its declared investments have exceeded $750 million. The company has suspended operations at its factory in Kharkiv region since February 24, 2022 due to Russian aggression and was forced to switch to importing products from eight PMI factories outside the country and a temporary partnership with another international manufacturer in Ukraine. In May this year, the company officially launched a new factory in Lviv region with an announced investment of $30 million.
PMI cut shipments in the Ukrainian market by 30.1% to 11.07 billion cigarettes and tobacco sticks in 2022 due to the war, but it managed to increase finished goods shipments by 8.4% in 2023, including a 14.9% increase in the fourth quarter. Last October, the company said its share of the Ukrainian market had recovered to 24% after dropping to 14% from 28.5% in the first months after the Russian Federation invasion.
On Wednesday, tobacco manufacturer Philip Morris International officially opened a new factory in Lviv region, in which it has invested $30 million.
“The first line is already in operation. The second line is almost completed and will start operating in June… In total, five lines will be installed, 10 billion cigarettes will be produced, which will fully meet the needs of the local market of Ukraine,” said Philip Morris Ukraine (PMU) CEO Maxim Barabash at the opening of the factory.
He emphasized that the focus of the production is to cover the market demand for cigarettes.
According to Barabash, there are no plans to expand production for export or manufacture other products.
According to PMU, 250 jobs will be created at the factory. By now, the company already employs about 100 people relocated from the Kharkiv factory, which was “mothballed” on February 24, 2024, the day of the Russian invasion, and another 150 people are planned to be relocated by the end of the year.
“My dream for the future after the victory is that we have two factories. One would produce cigarettes, and the other would be in Kharkiv, working on new products that would be relevant and relevant at the time when this comes true,” Barabash summarized.
According to him, this year Philip Morris celebrates 30 years of operation in Ukraine. During this time, the company has invested about $750 million in the Ukrainian economy and is one of the largest taxpayers.
Philip Morris was spun off from Altria in 2008 and is one of the world’s largest tobacco manufacturers. The company’s revenue for 2023 increased by 10.7% compared to 2022 to $35.2 billion, and for the first quarter of 2024 – by 9.7% to $8.79 billion. The report states that Ukraine accounts for approximately 2% of total sales in physical terms and 1% in monetary terms.
In 2022, PMI reduced shipments to the Ukrainian market by 30.1% to 11.07 billion cigarettes and tobacco sticks due to the war, but in 2023 it managed to increase shipments of finished products by 8.4%, including 14.9% in the fourth quarter. Last October, the company announced that it had recovered its share of the Ukrainian market to 24% after it fell to 14% from 28.5% in the first months after Russia’s invasion.
Prior to the launch of the new factory, PMU was forced to import products from eight PMI factories outside the country and a temporary partnership with another international manufacturer in Ukraine.
In addition to cigarettes, PMI develops and manufactures smokeless products, such as systems for electrically heating tobacco, POD systems containing nicotine, and nicotine products for oral administration. Sales of smokeless products accounted for 39% of PMI’s total net revenue in the first quarter of 2024.
Tobacco concern Philip Morris International has increased shipments of finished products in Ukraine by 8.4% in 2023 compared to 2022, the company said in a press release.
“For 2023, our finished product shipments in Ukraine increased by 8.4%. This figure includes both imported and locally produced products. The increase in shipments occurred as part of our strategy to regain market share, which we temporarily lost due to the war and the forced shutdown of our factory in Kharkiv region,” the company’s press service quoted Philip Morris’ CFO in Ukraine Sergey Kalnoochenko as saying.
According to the published financial report of the company, in the fourth quarter of 2023 PMI increased total shipments of cigarettes and tobacco products for electric heating in Ukraine by 14.9% compared to the same period of 2022.
In total, total finished goods shipments in the company’s European region, which includes Ukraine, increased 2.6% to 53.6 billion cigarettes in the fourth quarter of 2023 compared to the fourth quarter of the prior year, primarily driven by markets in Poland (up 10.6%), Italy (up 4.0%) and Ukraine (up 14.9%), partially offset by lower shipments in France (down 13.7%) and Germany (down 6.2%).
In total, Philip Morris International’s 2023 revenue increased 10.7% to $35.2 billion compared to 2022.
According to the report, the total number of adult IQOS users globally at the end of 2023 was estimated at approximately 28.6 million, an increase of 3.7 million from December 2022.
Philip Morris International (PMI) is a leading international tobacco company that has been operating in the Ukrainian market since 1994. Over 30 years of work, the company has invested more than $700 mln in the Ukrainian economy.
Philip Morris in Ukraine has suspended the operation of its factory in Kharkiv region since February 24, 2022. Since the beginning of the full-scale war in Ukraine, the company has secured a steady supply of its products to Ukraine through imports from 8 PMI factories and a temporary partnership with another international manufacturer in Ukraine.
Philip Morris plans to launch a new factory in Lviv region in the second quarter of 2024 with an investment of $30 mln.
In 2023, the company paid more than UAH 30 bln of taxes to budgets of different levels in Ukraine.
The National Agency for the Prevention of Corruption (NAPC) has added two tobacco market leaders Philip Morris International and Japan Tobacco International to the list of international sponsors of war because of their continued operations in Russia, the agency said.
“The NACP has added two tobacco market leaders Philip Morris International and Japan Tobacco International to the list of international sponsors of war,” the NACP said in a statement on its Telegram channel on Thursday.
According to the financial statements of Philip Morris’ Russian subsidiary, the company’s revenue in the first year of Russia’s full-scale invasion of Ukraine increased by 8% to RUB 140.3 billion, and net profit – to RUB 48.2 billion, which is 45% more than in 2021. “Having confidence in Russia’s economic potential, the company is implementing a large-scale long-term investment program,” the statement said.
“Japan Tobacco International (JTI) is the undisputed leader of the tobacco market in Russia (market share – 34.9%). The company itself has openly stated that the Russian market generated about USD 2 billion. USD in 2022 for the JT Group, or approximately 11% of its consolidated revenue for 2022,” the NACP cites data on the second company’s activities in Russia.
“JTI is the largest investor and leading taxpayer in the Russian tobacco industry. Over the past 20 years, JTI’s investments in the Russian economy have exceeded $4.6 billion. In 2020, the company’s tax payments accounted for 1.4% of the federal budget’s revenue,” the NACP said in a statement.
The NAPC emphasizes that despite the fact that “representatives of both companies have announced their plans to close their business in Russia, stop new investments and marketing activities in Russia, they still continue to manufacture and distribute products in Russia.”
