On 2 December, the Growford Institute initiated an expert discussion on “Tobacco Taxation: In Search of a Balanced Approach” in Kyiv. Ukrainian and international experts discussed the draft law No. 11090 on increasing excise tax taxes on tobacco products and introducing a European differentiated approach to their taxation.
The Verkhovna Rada of Ukraine is preparing to consider in the second reading the government’s draft law No. 11090 “On Amendments to the Tax Code of Ukraine Regarding the Revision of Excise Tax Rates on Tobacco Products”. This document envisages pegging excise taxes to the euro, achieving the minimum European level of cigarette taxation of 90 euros per 1,000 pieces, and implementing European practices in the taxation of tobacco products in Ukraine, which includes a differentiated approach to the excise tax burden on cigarettes and smokeless tobacco products for electric heating (HnB products). The IMF, the European Commission, and business associations supported this draft law.
Speaking about the need to raise more budget revenues on the one hand and to take into account the EU tax practices on the other, Oleh Pendzyn, Executive Director of the Economic Discussion Club, emphasized the importance of excise differentiation.
“Any excise policy is aimed at two things: state budget revenues and stimulating society to take certain actions related to the consumption of excisable goods. It is hardly possible to force a person to quit smoking today. It has to be a balanced decision, including economic incentives. The ideology of the excise taxes currently introduced in the EU pursues both goals. European documents often repeat the idea of improving public health by reducing smoking through the transition of smokers from harmful cigarettes to less harmful HnB products. This is exactly what the differentiation mechanisms laid down in the government’s draft law are aimed at, which will bring us closer to European standards”, said Oleh Pendzyn.
Oleh Hetman, coordinator of expert groups at the Economic Expert Platform, associate expert of CASE Ukraine, told how to respond to the growing threats of illegal trade in tobacco and nicotine-containing products.
“One of the largest schemes of Ukraine’s shadow economy is the illicit trade in excisable goods, which amounts to UAH 35–40 billion a year. Tobacco is the largest part of it — about UAH 20 billion. These are the amounts that the state budget does not receive. To prevent this, state institutions need to be strengthened. Primarily, the Economic Security Bureau, the State Customs Service, and the State Tax Service should be completely rebooted. Real killer fines for the black market in excisable goods should be adopted as soon as possible, as opposed to the current prior punishments. Public control needs to be strengthened, in particular, by providing a bonus for a consumer who helps expose a black trader in the amount of 50% of all penalties. All of our projects are on the tables of Members of Parliament, and we hope they will support them in the nearest future”, emphasized Oleh Hetman.
According to him, unlike cigarettes, where the share of the illicit market is about 15%, the HnB product market is completely legal. Therefore, the expected increase in excise taxes is guaranteed to provide tax revenues from this smokeless category of tobacco products.
Olha Sribna, PhD in Medicine, cardiologist, doctor of the highest category at the M.D. Strazhesko Institute of Cardiology, spoke about how the excise policy of the state can help reduce the negative impact of tobacco smoking on the health of Ukrainians.
“Participants of the study based at the Institute of Cardiology, who switched from cigarettes to smokeless products (HnB products and e-cigarettes) in 2016–2017, showed a marked improvement in cardiovascular health indicators. Now I am talking about an alternative to smoking in the form of lower-risk products, but we should not forget about medical methods of quitting smoking”, summarized Olha Sribna.
More details on the taxation of different categories of tobacco products in the EU can be found here.
Video from the event is available here.