Until 2025, Ukraine has a seven-year plan to increase tobacco excise taxes by 20% annually, which was intended to reach the minimum European level of cigarette taxation. However, due to devaluation processes, in particular those caused by the war, Ukraine will not be able to reach the target of 90 euros under the current plan. Experts from the NGO Centre for Civic Representation “Life” explained how Ukraine could meet the EU requirements for cigarette excise taxes and receive an additional UAH 36 billion. 

The need for an additional increase in excise duty to ensure the fulfilment of European integration obligations and additional revenues for the state budget is obvious. The minimum excise duty under the current Tax Code of Ukraine will be UAH 3,019.85 per 1,000 cigarettes in 2025. At the exchange rate projected by the Ministry of Finance, this will amount to only about 70 euros per 1,000 cigarettes. 

“Today, Ukraine is closer to joining the European Union than ever before. That is why we should not slow down this process but rather speed it up. To do this, we need to increase the excise tax rate on tobacco products, including cigarettes, to meet the requirements of Directive 2011/64/EU. This is a proven effective practice around the world to reduce the prevalence of smoking, especially among adolescents and young people. Human capital is now more valuable than ever, so the decision to increase the excise tax is a win-win for all parties”, – said Lada Bulakh, Member of Parliament of Ukraine.

On 13 December 2023, the NGO “Life Civic Advocacy Centre” held a press conference “How Ukraine can meet EU requirements for cigarette excise taxes and receive additional 36 billion“.

Experts from international organizations, members of parliament and representatives of the expert community discussed ways to increase the excise tax rate on tobacco products to meet Ukraine’s European integration commitments under Directive 2011/64/EU – 90 euros per 1,000 packs.

Model of additional excise tax increase on tobacco products

In order to meet the requirements of Directive 2011/64/EU, experts from the expert NGO “Life” have developed an “Analytical note on the possibilities of increasing the excise tax on tobacco products to meet the requirements of Directive 2011/64/EU by 2025”. The experts propose to increase the excise tax in two stages: in 2024, in addition to the planned 20% increase, by another 20% (40% in total), and in 2025, by 35% (15% added to the planned 20% increase). In this way, we will be able to reach the EU level of €90 per 1,000 cigarettes by 2025.

Experts expect that the state budget revenues from excise taxes on tobacco products will reach UAH 77.12 billion in 2024 and UAH 104.12 billion in 2025 if the above additional rates are introduced. If everything remains unchanged, the Ukrainian budget will lose at least UAH 35.8 billion in 2024-2025.

Infographic Tobacco excise taxes in Ukraine in 2013-2025

“By raising excise taxes, Ukraine will fulfil its international obligations under the Association Agreement with the EU and the WHO Framework Convention on Tobacco Control. This decision will significantly replenish the state budget, which is vital for the state in times of war. I would like to point out that the Ministry of Finance envisages a deficit of UAH 1.57 trillion for 2024. Increasing excise taxes on tobacco products will provide additional revenues from a product that is unnecessary for consumers, and potentially reduce pressure on the healthcare system in the medium term”, – said Dmytro Kupyra, Executive Director of NGO “Life”.

The increase in the price of tobacco products will help reduce the availability of tobacco products, especially for children and young people. According to the World Bank, a 10% increase in the price of a pack of cigarettes can reduce the consumption of illicit tobacco products by 6-8% in low- and middle-income countries, including Ukraine. This is especially important now, given the current demographic situation. 

“The excise tax of €90 per 1,000 cigarettes is the minimum tax in the European Union, but the European Commission is already considering a decision to increase the excise tax rate to €180 per 1,000 cigarettes in its draft revision of Directive 2011/64/EU, which will be a requirement for Ukraine as an EU candidate”, – said Lilia Olefir, director of the European Smoke Free Partnership, which brings together more than 50 organisations.

To eliminate the illicit trade in tobacco products, Ukraine should ratify the WHO international treaty, the Protocol to Eliminate Illicit Trade in Tobacco, which provides a set of effective measures that will allow the Government to solve the problem. The Protocol has already been signed by 68 countries, including all EU members. This document is the first protocol to the WHO Framework Convention on Tobacco Control, which Ukraine ratified in 2006.

In Ukraine, 130,000 people die every year from smoking-related diseases, and the country loses about 3.2% of its GDP.

In view of the above, an increase in the excise tax rate on tobacco products is a necessity. The proposed unplanned increase in 2024 and 2025 will ensure that Ukraine meets its international obligations under the WHO FCTC and the EU Association Agreement, as well as generate additional budget revenues of UAH 35.8 billion. At the same time, a possible increase in the cost of tobacco products will help reduce the prevalence of smoking (especially among children and youth) and potentially reduce pressure on the healthcare system.