The Reanimation Package of Reforms Coalition joins the statement of the Center for Civic Representation “Life” on the inadmissibility of granting a tax preference to heating cigarettes (HTP), as it will increase the prevalence of tobacco use among young people and lead to multibillion-dollar losses for the state budget in the context of war.

The Cabinet of Ministers of Ukraine has registered in the Verkhovna Rada the draft Law No. 11090 “On Amendments to the Tax Code of Ukraine on Revision of Excise Tax Rates on Tobacco Products” initiated by the Ministry of Finance of Ukraine, which proposes to provide a tax preference for heating tobacco products compared to cigarettes and cigarillos. The government proposes to reach an excise rate of 90 euros per 1000 units for cigarettes and cigarillos by 2028, and only 72 euros per 1000 units for HTPs. Thus, the tax preference for heating cigarettes will be 20%.

According to the estimates of the NGO “Life”, the adoption of the tax preference for HTPs initiated by the Ministry of Finance of Ukraine will result in a shortfall of UAH 15 billion in the State Budget of Ukraine for 2025-2028, and each subsequent year the shortfall in the State Budget from excise taxes on HTPs will be at least UAH 5.2 billion. Thus, by 2030, Ukraine’s losses will amount to at least UAH 25.4 billion. Contrary to Ukraine’s interests, these funds will be diverted from the pockets of citizens to tobacco companies, including international sponsors of the war.

If the Government had proposed to reach 90 euros/1000 cigarettes, cigarillos, and HTPs in 2025, the state budget revenues for 2025-2028 would have been more than UAH 50 billion (EUR 1.3 billion) higher than those that would have come from the increase proposed by the Ministry of Finance. If the price of 90 euros/1000 cigarettes, cigarillos, and HTPs is reached in 2026, the revenues to the State Budget for 2026-2028 will be UAH 30 billion (EUR 757 million) more than the proposed model in Draft Law 11090.

This position of the Cabinet of Ministers of Ukraine reflects the interests of Philip Morris International, a tobacco company that controls 80% of the market of heating cigarettes in Ukraine (used with IQOS devices) and is recognized by the NACP as an international war sponsor. As a reminder, PMI is the largest international taxpayer in Russia – in 2022, the company paid $4.756 billion to the Russian budget. 

The actions of the Ministry of Finance of Ukraine in the interests of the tobacco industry violate Ukraine’s international obligations under the ratified WHO Framework Convention on Tobacco Control (hereinafter referred to as the WHO FCTC). Article 5.3. of the WHO FCTC states: “In setting and implementing their public health policies with respect to tobacco control, Parties shall act to protect these policies from commercial and other vested interests of the tobacco industry in accordance with national law.”

The experience of Ukraine, which in 2021 harmonized excise taxes on HTPs, cigarettes and cigarillos to the same level, has demonstrated impressive efficiency: state budget revenues from excise taxes on HTPs increased 6 times in just 1 year (from UAH 1.7 billion in 2020 to UAH 10.2 billion in 2021). This decision was recognized as the best international practice, as stated in a letter from WHO Director-General Tedros Ghebreyesus to President of Ukraine Volodymyr Zelenskyi. Thus, by the Draft Law No. 11090, the Ministry of Finance of Ukraine abandons an effective practice in favor of importers and manufacturers of heating cigarettes, despite the proven effectiveness of the excise tax harmonization policy. 

At the same time, the Ministry of Finance of Ukraine is trying to persuade Ukrainians to use cigarettes for heating. This is evidenced by the explanatory note to the draft law No. 11090 and the Ministry’s response letter to public comments.

The WHO unequivocally states that there is no reason to believe that heating cigarettes (HTPs) are less harmful than other tobacco products. Independent studies have shown that levels of 22 harmful substances are 2 times higher in iQOS than in regular cigarettes, and levels of seven other substances are 10 times higher than in regular cigarettes. Thus, the use of HTPs is associated with the same risks to the pulmonary system as for smokers of regular cigarettes.

In Ukraine, heating cigarettes have become a tool for aggressively attracting young people, especially young women, to tobacco use. According to a KIIS survey conducted in December 2023, 18% of smokers in Ukraine use HTPs, while among young people aged 18-29, this share is 37%. In addition, women use tobacco products for electric heating more often than men (27% vs. 13%). It is worth noting that since 2017, the number of women smokers has doubled – this rapid growth was facilitated by preferential conditions for the latest tobacco and nicotine products and the lack of regulation for a long time.

In turn, a study by researchers at Lviv National Medical University, “Prevalence of Tobacco Products Use Among the Young Population of Lviv Oblast,” shows that the frequency of use of HTPs is higher than that of cigarettes: young women surveyed used heating cigarettes twice as often as traditional cigarettes every day. At the same time, compared to the surveyed smokers of conventional cigarettes, users of newer smoking methods were 14.6 times more unaware of the risks of their use and the impact on their health.

We consider any tax preference for heating cigarettes unacceptable and call on the Verkhovna Rada of Ukraine to:

1. Ensure a harmonized increase in the excise tax on heating cigarettes on a par with cigarettes and cigarillos to 90 euros per 1000 pieces
2. Accelerate the fulfillment of Ukraine’s European integration commitments to set the minimum excise tax on tobacco products at EUR 90 per 1000 pieces, as provided for in Directive 2011/64/EU.