NGO “Life” analyzed the results of revenues to the State Budget of Ukraine from excise duties on tobacco products in 2020.
According to the State Treasury, in 2020 the State Budget received 54.7 billion hryvnias from the excise tax on tobacco products produced in Ukraine and imported. This is 10.6 billion hryvnias more than in 2019 and 6 billion hryvnias more than planned by the budget law (considering the changes). Additional revenues from tobacco excises (10.6 billion) actually provided 60% of the amount used by the Ministry of Health in 2020 from the COVID Fund (17.8 billion).
“50.5% of Ukrainian teenagers aged 14-17 years have experience of smoking at least one cigarette during their lifetime according to the ESPAD survey. 13% of the adolescents surveyed in 2019, smoked daily. Now cigarettes in Ukraine continue to be one of the cheapest in the world. International researches have shown that raising tobacco prices by raising excise taxes is the most effective way to reduce the prevalence of smoking because children will not become daily smokers due to the high price, and some adult smokers will be able to quit. And thanks to the increase in taxes, we see that the prevalence of smoking among children is gradually decreasing, and budget revenues are growing,” said Lada Bulakh, a Member of Parliament of Ukraine.
The growth of revenues confirms the validity of the plan defined by the current legislation for the annual growth of tobacco excise rates by 20% by 2025. In addition, from January 1, 2021, the state harmonized excise rates on heated tobacco products (HTPs) and also imposed taxes on cigarillos and liquids for electronic cigarettes.
Danylo Hetmantsev, Chairman of the Parliamentary Committee on Finance, Tax and Customs Policy, said: “In order to ensure equal tax conditions in the tobacco market and reduce the affordability of tobacco products for children, the Parliament of Ukraine has introduced the same excise tax on all common tobacco products: cigarettes, cigarillos and HTPs and introduced an excise tax on liquids for electronic cigarettes. The approved changes will also help fill the State Budget.”
Excise rates in 2020 increased by 20% and revenues increased by 24%. This was not caused by an increase in sales of tobacco products: according to Tedis-Ukraine, the cigarette market in 2020 decreased by 10-12%. According to the international report of the company Philip Morris during 9 months of 2020, the market of tobacco products (cigarettes and HTPs) in Ukraine decreased by 9.7%.
The excess of the plan of revenues from tobacco excises is due to the fact that excises are paid not by selling tobacco products, but by buying excise duty stamps for them. It is obvious that tobacco companies bought excise stamps in advance for products that will be sold in 2021, but paid for them at significantly lower rates in 2020. This is especially true of HTPs, the rate of excise duty on which increased by 4 times in January 2021, which corresponds to the level of the minimum excise duty on cigarettes. After all, HTPs, as well as cigarettes, contain tobacco and become addictive and emit a secondary aerosol, which is harmful to the health.
“During the last months of 2020, tobacco companies imported a large number of HTP sticks and paid excise duty on them at 2020 rates. Accordingly, in the first months of 2021 there will be almost no imports of HTPs and excise duties from them. This phenomenon is called “forestelling” and so far no effective countermeasures have been taken in Ukraine. Therefore, in the first months of 2021, revenues from excise duties on tobacco products will be significantly lower than in the last months of 2020, despite the increase in excise duty rates,” said Konstantin Krasovsky, an expert of the NGO “Life” on tobacco taxation.
Excise policy continues to give excellent results: over the past 8 years, budget revenues from tobacco excises have more than tripled (from 18 to 55 billion hryvnias) while reducing cigarette sales and smoking prevalence. Therefore, it is necessary to continue to consistently increase excise tax rates on all types of tobacco products. Effective measures should also be taken to combat forestelling and other tax evasion tactics.
Contacts: Dmytro Polonsky, Media Coordinator of the NGO «Life», +38063 344 12 69, firstname.lastname@example.org