Чому уряд дає податкові пільги спонсору війни Philip Morris Internationa

80% of the e-cigarette market is currently controlled by Philip Morris International, which is the largest taxpayer in Russia and a sponsor of the war in Ukraine. The government proposes to provide incentives for the production of its products.

The Cabinet of Ministers of Ukraine has registered a draft law in the Verkhovna Rada to revise excise taxes on tobacco products. This document, initiated by the Ministry of Finance, takes into account tax incentives for heated tobacco products (HTUs).

The government proposes to reach an excise rate of 90 euros per thousand pieces for cigarettes and cigarillos by 2028, while for HTPs the rate will be only 72 euros per thousand pieces. Thus, the tax exemption for heating cigarettes will be 20%.

Has the international war sponsor Philip Morris International defeated the Ukrainian government?

The Cabinet of Ministers’ proposal to provide tax incentives to HTPs reflects the interests of Philip Morris International (PMI), which controls 80% of the market for heated cigarettes (used in conjunction with IQOS devices). PMI is the largest international taxpayer in Russia: in 2022, the company paid $4.756 billion to the Russian budget. In 2023, the NACP recognized Philip Morris International as an international sponsor of the war against Ukraine.

The actions of the Ministry of Finance regarding tax exemptions for HTPs violate Ukraine’s international obligations under the WHO Framework Convention on Tobacco Control. This document stipulates that when developing tobacco control policies, parties should protect them from the influence of commercial interests of the tobacco industry in accordance with national legislation.

What is the Ukrainian budget losing because of tax breaks for war sponsor Philip Morris International?

According to the calculations of the Life NGO, the state budget will lose UAH 15 billion in 2025-2028 as a result of the adoption of tax incentives for HTPs, and at least UAH 5 billion annually for each subsequent year. This will mean a significant loss of funds that could be used for the needs of citizens and will increase the profits of tobacco companies, including international sponsors of the war, such as Philip Morris International and JTI.

If the excise tax rate of EUR 90 per thousand cigarettes, cigarillos and HTPs is adopted in 2025, the state budget revenue in 2025-2028 would be more than UAH 50 billion (EUR 1.3 billion) higher than under the model proposed by the Ministry of Finance.

If the excise tax rate of EUR 90 per thousand cigarettes, cigarillos and HTPs is reached by 2026, the state budget revenues in the period from 2026 to 2028 will increase by UAH 30 billion (EUR 757 million) compared to the proposal proposed by the government.

Young smokers do not switch to IQOS, they start smoking with it

It is important to note that young people do not switch to HTPs, but start their consumption with this type of product. The explanatory note to the draft law and the response letter from the Ministry of Finance express responsibility for healthcare policy making.

Despite the statements of the World Health Organization (WHO), as well as the positions of the Ministry of Health and the Center for Public Health, the Ministry of Finance defines heating cigarettes as products with “potentially reduced risk to human health.” Organizations funded by or affiliated with the war sponsor Philip Morris International actively promote this “potential”.

According to the WHO, there is no scientific evidence to suggest that heating cigarettes are less harmful than other types of tobacco products.

Independent studies show that the level of 22 harmful substances in iQOS products is twice as high as in conventional cigarettes, and the level of seven other substances is ten times higher. Thus, the use of IQOS is associated with the same risks to the pulmonary system as the use of conventional cigarettes.

Ukrainian youth has become a target audience for aggressive promotion of heating cigarettes, especially among young women. Since the beginning of 2017, the prevalence of tobacco and nicotine use among women has doubled. This was facilitated by favorable conditions for the newest means of tobacco and nicotine consumption, as well as the lack of regulation in this area for a long time.

The tax exemption for RES is a negative step

Ukraine’s experience has shown the effectiveness of harmonizing excise taxes on HTPs, cigarettes and cigarillos to the same level in 2021. This policy led to a 6-fold increase in revenues from excise taxes on HTPs, from UAH 1.7 billion in 2020 to UAH 10.2 billion in 2021.

The WHO has recognized this strategy as a best practice and wrote to President Volodymyr Zelenskyy about it, but the proposal of the Ministry of Finance rejects this approach in favor of importers and manufacturers of HTPs, ignoring the proven effectiveness of the excise tax harmonization policy.

Raising the excise tax on tobacco products is one of the most effective ways to combat the spread of smoking, as stated in the WHO Framework Convention. Ukraine should also raise excise taxes in line with its European integration commitments. Therefore, it is important not to delay this process, as the European Commission is already considering raising the excise tax rate to EUR 180 per thousand cigarettes.

The plan until 2028 proposed by the Ministry of Finance is too long-term. The European Commission has already begun negotiations on Ukraine’s accession to the European Union, and it is therefore time to raise the excise tax on tobacco to 90 euros.

This will help fulfill European integration requirements, reduce the flow of Ukrainian smuggling to the EU, significantly replenish Ukraine’s military budget, and reduce the availability of harmful products, especially for young people.

While Ukraine calls on businesses and international companies to withdraw from the Russian market and not support Russian aggression, it is also acting in the interests of Russia’s largest international taxpayer. Our country’s reputation on the international stage is called into question when it comes to the 17-hryvnia egg price and drums in shelters. The Verkhovna Rada has the opportunity to influence the government to improve the proposal to eliminate tax preferences for international war sponsors and protect young people from harmful tobacco products.

Dmytro Kupyra, executive director of the NGO “Life”