Tobacco War

The latest increase in excise taxes on tobacco, which is scheduled to introduce in October, would be the fourth in 2009. However, unstable work of the Verkhovna Rada has hindered the government's plans for the tobacco industry. However, according to the manufacturers, the state has not abandoned its intention to raise excise taxes on tobacco products.
Government is trying to replenish the budget at the expense of excisable goods and tobacco control organizations - to make cigarettes less accessible. The main argument of producers - to buy cigarettes will be less, respectively, and proceeds from the excise tax will be lower than planned. However, certain representatives of the industry, smuggling of cigarettes in Ukraine after the next increase will increase substantially.
Attempt N4
In August, the Cabinet of Ministers submitted a proposal to the Verkhovna Rada to increase from 1 October 2009 an ad valorem component of excise duty on tobacco from 20% to 36% of turnover through an amendment to the bill "On Amending the Law of Ukraine" On State Budget of Ukraine for 2009 "N4707 in preparing its second reading.
According to the coalition of social organizations and initiatives, "For a smoke-free Ukraine" (hereinafter - the Coalition), the next increase in excise duties are designed to achieve two main objectives: increasing revenue and reducing the impact of smoking on human health.
As the advisor to the First Prime Minister of Ukraine Vladimir Ryaboshlyk, in the case of adoption of the draft N4707, October-December 2009 intended to increase revenue to the state budget to 400 mln. But consider the bill in the session hall and could not - because of the unstable operation of the Verkhovna Rada.
In association Ukrtyutyun "believe that the next increase in excise duties in 2009, contrary to the principles of constructing a system of taxation, among them - unchanged tax rates and levies for the fiscal year.
"Authorities again this year initiates increase excise duty on tobacco products. Do not overlook this devastating effects on the domestic tobacco market, and again suggest an increase in excise tax, which would lead to higher prices of tobacco products of Ukrainian origin is 20-30%, at least, disrespect for the legal industry who faithfully pay taxes to the state budget of Ukraine " - say the association.
Cigarette fewer
According to the Coalition, in January-July 2008, the average sale of cigarettes produced in Ukraine amounted to 9,55 billion pieces per month, while revenue from excise taxes on them - 228 mln.
In July 2009, noted in the Coalition, sales amounted to 9,54 billion pieces, and revenue - 985 mln., That is 4 times more. At the same time in January-August 2009 sales volumes of cigarettes decreased by 10%, compared with the same period in 2008, said V. Ryaboshlyk.
Association Ukrtyutyun "also indicates a significant decline in production and sales. According to Goskomstat, which refers to "Ukrtyutyun, production of tobacco products declined from May to July at 25%, and sales volume - more than 27%.
According to estimates by Yuri Kishko, manager of corporate affairs for Imperial Tobacco Ukraine ", in August 2009 produced 9.9 billion cigarettes, which is 20,2% less than in August 2008 (12.4 billion).
In the State Tax Administration of Ukraine (Tax Administration) also confirm the reduction in the supply of tobacco products. According to the deputy chairman of the excise STAU Andrew Filozopa, in May 2009, volumes of sales decreased by approximately 50% (year to year). However, in June, falling sales volumes slowed to 20%, and in July - up to 17%.
However, A. Filozop not answer the question whether the continued slowdown in the fall of the implementation through the year, citing insufficient data for such a prediction.
Treasury receipts
Data on the amount of excise revenue from tobacco workers and the Coalition also diverge. Thus, anti-tobacco organizations say about the significant growth in revenue to the state budget, while the representatives of the tobacco industry point to the shortfall.
According to the State Tax Administration, which refers to the Coalition, the amount of excise tax revenue from tobacco products for 7 months of 2009 increased by 2,4 times (year to year). Total for this period - taking into account the excise tax on imports - the budget was 4 billion 116 mln. (in 2008 - 1,6 billion UAH.).
However, according to official State Tax Administration, in August 2009 the excise tax revenue from tobacco products increased by 3,8 times up to 986,8 mln. (724.8 mln. Year to year). Total for 8 months of 2009 revenues from excise tax of tobacco products increased by 2,6 times to 4,732 billion UAH. (2.903 billion UAH.).
"Ukrtyutyun, in turn, has estimated that the actual amount of excise tax revenue from manufactured and imported tobacco products in Ukraine for the period May-July 2009 amounted to about 65% of projected.
Cigarettes - affordable

In "Ukrtyutyun" note: if the excise tax on tobacco products will be raised again, the consumer will have to accept another price rise. As a result of a May rate hike excise rates on cigarettes at retail on average increased by 1,5-2 grn., Or by 20-30%. At this time, prices will rise another 25%.
Coalition confirms data "Ukrtyutyun" about rising prices, pointing out that the price hike will make cigarettes less accessible to consumers, which, in turn, will reduce the number of smokers in Ukraine.
Most of all, according to the Coalition, will rise in the price is expensive brands of cigarettes. Average packet will increase from 5,15 UAH. to 6,40 UAH. but, for example, a pack of "Marlboro" - from 8 to 10 UAH.
Antitabachniki believe that with the next higher level of excise tax in Ukraine will overtake Russia, but still remain much lower than the level of European countries. According to V. Ryaboshlyka, today the price of cigarettes "Marlboro" in Russia, recalculated the hryvnia, UAH 10. for the stack, and in EU countries such as Romania and Bulgaria - 20 and 22 grn. per pack, respectively.
In addition, according to the Coalition, the excise rate in Ukraine is still lower than in EU countries. So, in July 2009 a pack of filter cigarettes in Ukraine cost an average of 5,54 UAH. (0,5 euros), while the share of excises in it - 2,12 UAH. (0,2 euros), significantly below the European level (not less than 1.28 euros per pack).
For its part, the tobacco companies point to the imbalance in the availability of cigarettes, which occurred in Ukraine in 2007-2009. Thus, for 2,5 years, given the level of average wages are, since January 2007, wages increased (adjusted for inflation) at 3.1%, while the price of the best-selling cigarette brand in the same period - up to 40%.
The threat of smuggling
The May increase in the rates of excise duty, according to the tobacco workers, led to a significant influx of smuggled from neighboring countries. Therefore, a new increase in excise taxes can double the volume shadow market, manufacturers are confident.
"In fact, we provoke (in the case of the next increase in excise duties, - Ed.) Sailed smuggling, which has already begun, from Russia", - convinced Ryabenko Constantine, Director of Corporate Affairs CJSC Philip Morris Ukraine ".
According to D. Redko of "JT International Company Ukraine, for 3 months after the increase in excise duties in May 2009, decline in legal production in Ukraine amounted to about 25%.
"If you do not raise taxes, then about 20% of the market will be" black ". If you raise, then the rate of a year we lose about 20% ", - predicts Yu Kishko of Imperial Tobacco Ukraine".
According to him, during the inspection carried out by "Imperial Tobacco" in 17 regions of Ukraine, was found more than 500 points of sale of contraband cigarettes. "Cigarettes (contraband - Ed.) Sold not only on trays, but also in grocery stores, kiosks, pavilions," - he said.
However, while the volume of cigarette smuggling from Ukraine greatly exceed the volume of illegal tobacco products entering the country. "If we compare data on attempts to irregularities in the export of cigarettes from Ukraine and imported to Ukraine, then the number of detentions, the ratio will be 1 to 7, ie at 1 attempt smuggling of cigarettes in Ukraine accounted for 7 cases of illegal export," - noted the director Department organization to combat smuggling and violation of customs regulations Customs Service Andrei Fedkin.
Based on the number of pieces of this relationship, he said, will be 1 to 10, ie at 1 cigarette, which is illegally imported to Ukraine, 10 cigarettes - are exported. In value terms, this ratio will be 1 to 11.
"So for today we have significant excess in trying the illegal export of goods (cigarettes, - ed.) From the customs territory of Ukraine", - pointed out by Customs Service.
Dmitry GOVD
Help. Increasing excise taxes on tobacco products in Ukraine
A significant increase in excise duties on tobacco and tobacco products began in September 2008. In 2009, excise duties were raised by 2 times (in February and May) and if, in the words of the First Adviser to the Prime Minister of Ukraine Volodymyr Ryaboshlyka take into account the indexation of excise on tobacco products in the light of consumer prices, the increases in total for the current year was 3.
On September 1, 2008 came into force the Law "On Amendments to Article 1 of the Law of Ukraine" About rates of excise duty on tobacco products "" N340-VI. Excise tax rates in lump sum per unit sold goods (products) for unfiltered cigarettes, cigarettes amounted to 12,5 UAH. for 1000. for filter cigarettes - 30 UAH. for 1000. In addition, the excise as a percentage of turnover from the sale of the goods for unfiltered cigarettes, cigarettes were 16% for cigarettes filter - also 16%.
1 February 2009 entered into force the Law "On amending some laws of Ukraine concerning the taxation" N797-VI, which the Supreme Rada has raised excise duty on cigarettes without filter - up to 15,6 UAH. for 1000 pieces (previously 12,5 UAH. for 1000 pieces, with the filter - up to 37,5 UAH. for 1000 pieces, up to this - 30 UAH. for 1000 pieces).
May 1, 2009 came into force the Law "On Amendments to Certain Legislative Acts of Ukraine on the excise tax" N1201-VI, which increased the rate of excise duty in the lump sum per unit sold goods: cigarette without filter cigarettes to 35 UAH. for 1000 pcs. (before - 15.6 UAH.), with the filter - up to 60 UAH. for 1000 pcs. (before - 37.5 UAH.). In addition, the rates of excise duty as a percentage of turnover from the sale of the goods have risen to 20% (previously 16%).
C 24 July 2009 the Cabinet of Ministers Decree N861-p approved the excise rate on tobacco products, indexed by taking into account the consumer price (amounting to 115%). Thus, the new specific rates of excise duty to the consumer price index (CPI) for non-filter cigarettes, cigarettes account for 40,25 hrn. for 1 thousand pieces. (previously - 35 UAH.) filter - 69 UAH. for 1 thousand pieces. (previously - 60 grn.).
According to Art. 3 of the Law of Ukraine "On taxation system" one of the principles of constructing a system of taxation is stability - ensure the stability of taxes and duties (mandatory payments), and their rates during the fiscal year. In addition, according to Art. 1 of the Act amendments and additions to the tax laws regarding the increase of tax rates and charges may be made not later than six months before the new fiscal year and shall come into force starting from next fiscal year.