The Cabinet of Ministers of Ukraine at a meeting on Friday roughly doubled the fee for excise tax stamps for alcoholic beverages, tobacco products and liquids used in electronic cigarettes to cover costs associated with their production, storage and sale, the Finance Ministry said.
According to its release, the stamp for alcoholic beverages went up from 16 kopecks to 35 kopecks, for tobacco, electronically heated tobacco products (TIEN) and liquids used in e-cigarettes – from 9 kopecks to about 16 kopecks.
The cost of the excise tax stamp has not changed since 2014, the Ministry of Finance pointed out.
As reported, the Verkhovna Rada in January 2023 adopted in the first reading of the Eurointegration bills № 8286 and № 8287 on the introduction of electronic excise stamps for alcoholic beverages, tobacco products and liquids used in e-cigarettes. These legislative initiatives are implemented to ensure control over the turnover of excisable products.
Ministry of Finance of Ukraine has submitted a proposal to the Cabinet of Ministers to increase the fee per excise tax stamp for alcoholic beverages to UAH 0.3205 from the current UAH 0.1926, and for tobacco products, tobacco-containing products for electric heating (TCHE) and e-cigarette liquids to UAH 0.1484 from UAH 0.091.
According to the text of the relevant government decree, which is available to the news agency Interfax-Ukraine, increase in price of excise stamps is necessary to compensate printing companies for the cost of their production and storage.
The Ministry of Finance in an explanatory memorandum to the draft decree states that the last time the cost of excise stamps for alcoholic beverages and tobacco products was revised more than 8 years ago and now their established value does not correspond to the actual cost of production.
For example, according to the stamp manufacturer, in 2022 alone, its costs for electricity for production are up 74% over 2021, 17% for heat, 107% for heating, 106% for hot water, and 6% for security.
“Prices per ton of paper in 2022, according to the commercial proposals of the National Bank of Ukraine, has already increased by more than 200%, and will increase in 2023 by at least 32.2% (since 2014, the price has increased 4.8 times),” the explanatory note to the draft resolution states.
In addition, the increase in the cost of energy and other resource components makes the issue of compensating the producer of stamps for the costs associated with their storage and sale relevant.
According to the document, 1.9 billion excise stamps for tobacco products and 0.56 billion stamps for alcoholic beverages will be produced by the end of 2022. At the same time for the first 9 months of this year 2.07 billion excise stamps were produced for the above products (2.91 billion in 2021).
Thus, the adoption of the draft decree would require next year for the Ukrainian producers and exporters of alcoholic beverages 71.6 million UAH (0.56 billion pieces * 0.1279 UAH) of additional costs, and for tobacco products – 108.3 million UAH (1.9 billion pieces * 0.057 UAH).
Since July 5, Australia has marked tariffs on Ukrainian imports of goods, in addition to alcohol, fuel and tobacco, as a support package for a year, according to the website of the Australian Department of Trade and Tourism.
As indicated by the agency, we are talking about reducing tariffs from 5% to zero for a period of 12 months for a number of goods that are produced or produced in Ukraine. At the same time, it is clarified that duties equivalent to excises remain in force, for example, those that apply to fuel, alcohol and tobacco products.
According to the report, such measures from Australia and other states support the economy of Ukraine and expand its trading opportunities, and they are also important for Ukraine’s recovery in the near and long term.
According to the report, in 2021, Ukrainian exports to Australia amounted to $122 million.
The simplified customs control regime does not apply to ethyl alcohol, alcohol, beer, tobacco and tobacco products and liquids for electronic cigarettes, the European Business Association (EBA) explained, citing the clarifications of the Ministry of Economy and the Ministry of Finance.
As the EBA pointed out in a message on the website, the simplified method provides for customs control and customs clearance of goods, in particular vehicles, imported into the customs territory of Ukraine, without the collection of customs payments, including value added tax, excise tax, import duty.
The importer provides the customs authority with a preliminary customs declaration without customs inspection, without the use of phytosanitary control, measures of non-tariff regulation of foreign economic activity (except for state export control) directly at the checkpoints across the state and customs borders of Ukraine, the association said, based on clarifications.
“However, the simplified customs control and clearance regime will not apply to certain goods, in particular ethyl alcohol, alcoholic beverages, beer, tobacco products, tobacco, liquids used in electronic cigarettes,” the report says.
In addition, it is emphasized that the issuance of licenses, in particular for the import of goods, has now been stopped. Resumption of the suspended terms will occur within a month after the termination or cancellation of martial law.
The share of illegal tobacco products on the Ukrainian market in February-May 2021 increased by 3.1 p.p., to 15.9%, this is the maximum indicator, mainly due to the growth of illegal sales of products labeled as Duty Free, as well as those intended for export.
Such data were published by the Kantar Ukraine research institute through a survey of 3,300 adult smokers throughout the country, as well as by studying the origin of tobacco products in circulation.
According to the study, the total volume of illegally sold cigarettes since the beginning of the year, including May, amounted to 7.21 billion pieces, which led to a shortfall in the state budget of UAH 13.2 billion in tax deductions.
Kantar clarified that in May 2021 the share of counterfeit products on the Ukrainian cigarette market increased by 1.8 p.p. compared to February – up to 4.2%, the share of products labeled for Duty Free and export illegally sold in the country – by 1.3 p.p., to 8.2%, while the share of smuggled cigarettes decreased by 0.1 p.p., to 1.6%.
According to the results of the study, the average annual level of illegal sales of tobacco products in January-May 2021 increased by 2.1 times compared with the indicator for the entire 2020 – up to 14.4%. At the same time, since the beginning of this year, the share of counterfeits in the domestic cigarette market has grown by 3.1 p.p. compared to the data for 2020 – up to 5.1%, the share of products marked for Duty Free and export illegally sold in Ukraine – by 4.8 p.p., to 7.6%, while the share of smuggled cigarettes decreased by 0.5 p.p., to 1.7%.
“In addition to another growth in the volume of illegal tobacco products, another feature of 2021 is that there is a change in the distribution channels for illegal products. In 2021, three times more illegal tobacco products were sold through kiosks and stores than in 2020,” analyst from Kantar Ukraine Tetiana Sverdlyk said.
The institute clarified that 62% of tobacco products illegally sold as export or Duty Free products are marked as produced by the Vynnyky Tobacco Factory (Vynnyky, Lviv region) and are marked as not intended for sale in Ukraine. The share of unidentified manufacturers is 20%, United Tobacco LLC (Zhovti Vody, Dnipropetrovsk region) – 15%.
The most common brands of this group of illegal products are the Compliment brand marked as Duty Free – with a share of 47%, as well as those intended for export, but sold in Ukraine, namely Marshall (13%), Marvel (10%), Urta (8%) and Jin Ling (6%). The total share of these brands in this product group was 84%.
Kantar noted that 49% of smuggled cigarettes are products of Grodno Tobacco Factory (Belarus), 15% are from Moldovan factories. The most common smuggled brands are Credo, Fest, Queen, Dove, NZ, Ritm.
It is specified that 63% of illegal products are distributed in seven regions of Ukraine, most of all – in Odesa and Kharkiv (13% each), Donetsk (10%), Dnipropetrovsk (8%), Zaporizhia, Khmelnytsky and Lviv (6% each) regions.
Philip Morris Ukraine this year predicts a decline in the legal market of heated tobacco products by 3.1 times compared to last year, to 1.5 billion pieces, due to an increase in the excise tax on these products from January 2021 by 320%, Financial Director of Philip Morris Ukraine Maksym Barabash said at a press conference in Interfax-Ukraine.
“A one-time increase in excise taxes by 320% from January 1 requires a price increase of approximately UAH 29 (for a pack of heated tobacco products), not including the price increase due to inflation and the devaluation of the hryvnia. If we transfer this price increase to consumers, the price will increase to 80-90,” he explained.
CEO of the company Kostas Salvaras said that Philip Morris Ukraine supports amendments to law No. 4278, proposing an increase in the excise tax on heated tobacco products by 200% with its further growth by 30% in 2022-2025 instead of a one-time increase by 320%. These changes in the form of amendment No. 55 were adopted in February by the parliamentary committee on finance, taxation and customs policy.
According to the calculations of Philip Morris Ukraine, a smoother increase in the excise tax will help protect the legal market, the capacity of which, if this amendment is adopted, will grow this year by 6.3% compared to 2020, to 5 billion units.
The company also expects that in the event of a gradual increase in tax, the growth of revenues to the state budget in 2021 will not be lower than UAH 4.8 billion planned by the Ministry of Finance, and UAH 6.5-7.5 billion in 2022.
Barabash clarified that a one-time increase in excise tax by 320% will lead to a 1.5-fold increase in prices for the products, and will make illegal import of heated tobacco products four times more profitable than smuggling regular cigarettes. The company’s financial director estimated the profit from the illegal import of one heated tobacco product box at $ 500-800.
In addition, according to him, the equalization of the excise tax rate for heated tobacco products and ordinary cigarettes to 320% will entail a return of users of devices for heating tobacco to cheaper and more harmful nicotine-containing products – cigarettes. He noted that this decision contradicts European practice, since on average in the EU countries the excise tax on heated tobacco products is 72% lower than the excise tax on cigarettes, while in Ukraine this figure is 28%.
Barabash clarified that a sharp increase in the excise tax on this product would jeopardize UAH 4.2 billion already invested in the development of the Ukrainian infrastructure of the IQOS brand, which employs more than 2,000 people. It will also make it impossible to localize the production of heated tobacco products in Ukraine, which could reduce the price of this product.
As reported, Philip Morris International is one of the world’s largest tobacco manufacturers. It produces cigarettes in more than 50 factories and sells them in 180 countries.
The company has been operating in Ukraine for over 20 years. In Ukraine, Philip Morris owns a factory in Kharkiv region, the company employs over 1,300 people.
In 2020, the company reduced the shipment of cigarettes in Ukraine by 4.3% compared to 2019 due to a general market decline, which was partially offset by an increase in the market share of heated tobacco products.
