On the Taxation of Cigarettes and Heated Tobacco Products: The Benefits of Following Current Law for Cigarettes and Law #466-IX for HTPs

2020

The “7-year plan”, approved by the Parliament of Ukraine and signed by former President Petro Poroshenko in Dec 2017 affected excise taxation by increasing the specific excise tax rate for cigarettes in 2018, followed by a gradual increase every year from 2019 to 2025.

Current law’s tax schedule would increase the excise tax by 20% every year over the following 5 years, from Jan 1 2021 to Jan 1, 2025. As of Jan 1, 2020, cigarettes (with or without filter) are subject to a mixed excise tax system including a specific excise of UAH 907.2 per 1000 sticks and an ad-valorem tax of 12% of the retail price. The minimum total excise is UAH 1213.61 per 1000 sticks. By 2025, the specific excise would be UAH 2257.4 per 1000 sticks. The minimum total excise that year would be UAH 3,019.85 per 1000 pieces (about € 93.2).

The tobacco industry has proposed a different tax increase schedule that would automatically cancel current law’s schedule. Instead of an annual increase of 20% over the next 5 years (2021-2025), the schedule would increase the specific excise by 10% annually, over 10 years from 2021 to 2030. By 2025, the specific excise would be UAH 1,461.05 per 1000 sticks (about € 45) according to the tobacco industry research.

Under the current tax system, the net present value (NPV) of total cigarettes tax revenue (VAT, state excise tax, local retail tax) over the next five years (2021-25) would be UAH 66.5 billion larger than that of the industry’s alternative proposal.

Following current law within the next 5 years (2021-2025) would prevent 488 thousand lives from deaths directly due to smoking over smokers’ lifetimes, almost twice as many lives saved under the industry’s schedule, which would save only 269 thousand by 2025.

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Autorhs: Estelle Dauchy, Pavlo Iavorskyi