Nowadays, the warning “Smoking kills” is gaining real meaning. It is known that the largest Ukrainian tobacco market operators are four foreign corporations: “Philip Morris Ukraine, British American Tobacco Ukraine, JT International Ukraine, and Imperial Tobacco Production Ukraine. The leader among them is Philip Morris Ukraine, which is part of the American transnational corporation Philip Morris International. They own brands such as Marlboro, Parliament, Bond, Chesterfield, L&M, Next, HEETS (tobacco sticks for IQOS).
It is worth noting that Philip Morris, as well as some other tobacco transnationals, are distinctive in their presence on the Russian market despite two years of full-scale war against Ukraine. In 2022, Philip Morris announced its intention to sell its Russian business to preserve its reputation. However, all the “attempts” to sell the Russian business seem to have failed, and the corporation still remains one of the largest taxpayers to the Russian budget, writes Vitaliy Kulyk.
In Russia, Philip Morris International has two affiliated companies: the Philip Morris Ijora factory in the Leningrad region and the Philip Morris Ijora Kuban branch in Krasnodar, as well as Philip Morris Sales and Marketing LLC with branches in about 100 cities in Russia.
Philip Morris International’s market share in Russia was over 30% in 2019-2023. In total, Philip Morris International’s investments in Russia exceeded USD 2 billion. Thus, the company is one of the largest taxpayers to the Russian budget, which then finances the Russian army.
In August 2023, the National Agency for the Prevention of Corruption added two international tobacco companies, Philip Morris International and Japan Tobacco International, to the list of international sponsors of war. However, despite this, no sanctions were imposed and the company’s operations in Ukraine were not hampered. Philip Morris continues to operate successfully in Ukraine, earning super profits. Tedis has monopoly rights to sell premium cigarettes from Philip Morris in Ukraine. Previously, this company was called Megapolis Ukraine and in 2010, during the Yanukovych administration, it became a monopolist in the distribution of premium cigarettes. Investigators link the company to Yanukovych’s entourage and Russian arms manufacturer Igor Kesayev. In 2013, Philip Morris International Inc and Japan Tobacco Inc became beneficial shareholders of the Russian Megapolis, acquiring 20% of the shares each.
In 2013, the Azarov government deliberately reduced the ad valorem component of the Ukrainian excise tax on tobacco products from 25% to 12%. The ad valorem component of the excise tax on tobacco products is determined depending on their price. In Ukraine, this means that the ad valorem rate of 12% applies only to tobacco products with a price exceeding UAH 106 per pack. In most EU countries, ad valorem rates are much higher, often reaching 50%. In other words, a wealthy smoker who consumes expensive, premium cigarettes pays more taxes than a smoker of budget cigarettes. However, we have equalized taxes on Prima and Marlboro.
The difference is that Prima is domestically produced and does not operate in Russia, while Philip Morris, the manufacturer of the Marlboro brand, still finances the Russian army that is killing Ukrainians.
For 11 years, Ukraine has lost more than 100 billion hryvnias that could have been used to strengthen our country’s defense capabilities. Today, the situation is as follows: the money received from the sale of cigarettes by Philip Morris and other companies goes to companies with dubious reputations and, through taxes, finances the Russian army that threatens Ukraine. How can this be stopped? Possibility of imposing restrictions on companies that have not yet left Russia (e.g., sanctions against Philip Morris and Japan Tobacco) or raising the ad valorem rate on brands sold by these companies in our country. Why should we finance transnational corporations at the expense of our budget, especially those that cooperate with Russia?
Although there are relevant draft laws to increase the ad valorem excise tax rate on tobacco products in the Verkhovna Rada, they have not yet been considered or put to a vote. Resistance to the “tobacco cartel” and interference with the Ukrainian budget continues.