PrJSC Philip Morris Ukraine, a large tobacco producer, proposes to replace a 320% tax increase on tobacco products for electric heating, which should come into force on January 1, 2021, with an annual increase of 50% during 2022-2025 or 200% in 2021 and 20% in subsequent years.
According to the published letter of Philip Morris Ukraine CEO Konstantinos Salvaras to the president of Ukraine, a gradual increase in the excise tax on tobacco products for electric heating by 50% per year or by 200% in 2021 and by 20% in subsequent years will save the market from a total transition to the shadows and bring more revenues to the state budget than a sharp increase in the excise tax rate by 320%.
“We urge the government to move away from the practice of unpredictable and unstable tax policy, which affects both the attitude of investors and the economy of the country. Tax increases should be gradual, not fourfold,” the Philip Morris letter says.
The company reported that the government and academia share the vision of a gradual increase in the tax rate. Thus, the Ministry of Economic Development, Trade and Agriculture supports the idea of increasing the rate on tobacco products for electric heating by 50% from January 1, 2021 and by 50% during 2022-2025, and a study conducted by the Institute for Economics and Forecasting of the National Academy of Sciences of Ukraine shows that a gradual increase in the excise tax on tobacco products for electric heating will provide additional UAH 18.7 million of revenues to the state budget compared to a sharp increase in the tax rate.
According to Philip Morris’ estimates, a sharp increase in excise taxes will lead to the loss of potential and real investments, state budget revenues, an increase in the level of smuggling, and a conflict with EU legislation.