On March 18, 2024, Draft Law of Ukraine “On Amendments to the Tax Code of Ukraine on the Revision of Excise Tax Rates on Tobacco Products” Reg. No. 11090 (hereinafter – Draft Law) developed by the Ministry of Finance of Ukraine was registered in the Verkhovna Rada of Ukraine.
The Draft Law aimed at harmonizing Ukraine’s tax legislation with EU legislation to implement the Association Agreement between Ukraine and the EU in terms of the provisions of Directive 2011/64/EU of 21.06.2011 on the structure and rates of excise duty applied to tobacco products (codification).
The provisions of the draft law, in particular, propose:
1) establish specific excise tax rates on tobacco products in euros;
2) gradually, by 2028, to increase the minimum excise tax liability on cigarettes to EUR 90/1,000 units to reach the relevant EU standard;
3) move to a smooth increase in the rate of excise tax on heat-not-burn products (hereinafter – HnB products) to EUR 72/1,000 units in 2028, which is due to the potentially reduced risk of their consumption, considering approaches to their taxation in EU countries and features of the tobacco market in Ukraine.
We express our gratitude to the Ministry of Finance for considering the conclusions of the study “Excise Policy and Illicit Trade in Tobacco Products: In Search of Balanced Solutions”, particularly regarding the absence of an illegal market for HnB products in Ukraine. That gives opportunities to calculate the additional excise tax revenues from the Draft Law implementations. According to the Ministry of Finance, implementing the law’s provisions will have a fiscal effect amounting to UAH 612 million in 2025, UAH 5,001 million in 2026, UAH 9,379 million in 2027, and UAH 13,852 million in 2028.
The details of the calculations can be found in the Expert Opinion of the Ministry of Finance of Ukraine (in the attached file).