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War brings not only destruction and human losses, but also a deep financial crisis that threatens the stability of the state. The state budget deficit for 2024 is projected at UAH 1.57 trillion, Ukraine’s GDP is a quarter lower than in 2021, and social benefits, education, and healthcare are currently funded by international partners, MP Lada Balabukh writes in her blog on Ekonomichna Pravda.

In other words, today the country is completely dependent on international support, and its defense and ability to defend itself against a Russian invasion are largely dependent on domestic revenues.

At the same time, in addition to the financial crisis, Ukraine is experiencing a demographic crisis – a rapid decline in population caused by a combination of factors, including tobacco and nicotine use in the top five. More than 100,000 people die of tobacco-related diseases in Ukraine every year.

Increasing tobacco excise taxes saves lives!

Given the need to protect children and young people from the tobacco epidemic and the additional revenue to the state budget, the policy of increasing excise taxes is a winning strategy for Ukraine. Moreover, such a policy will deepen Ukraine’s integration with the EU.

Currently, the excise rate for cigarettes, cigarillos and HTPs in Ukraine is about 59 euros per 1000 units. In the EU, the average tax on cigarettes has long exceeded EUR 90 and reaches EUR 177 per 1000 packs.

At the same time, when drafting the State Budget Law, the Government did not take into account the possibility of an additional increase in the excise tax on tobacco to fill the state budget. And now, in another draft law(No. 11090), he proposes to increase the excise tax on tobacco products to EUR 90 per 1000 pieces as early as 2028 and to create a 20% tax preference for heated tobacco products (HTUs).

This model reflects the interests of the tobacco industry rather than the health of citizens. The unreasonably weak increase in tobacco excise taxes will offset the reduction in the affordability of tobacco products for children and youth, and will lead to multibillion-dollar shortfalls in the state budget.

Ukraine should raise the excise tax to 120 euros in the coming years

My colleagues and I have initiated an alternative draft law 11090-3, which is much more beneficial for Ukraine in the following ways:

1) Adoption of the draft law 11090-3 will bring additional UAH 58 billion to the state budget

According to our estimates, the plan to harmonize the excise tax on cigarettes, cigarillos and HTPs to EUR 120/1000 units will be implemented. will bring EUR 13.14 billion (UAH 558 billion) to the state budget by 2028, while the government’s draft law will bring EUR 58 billion less (EUR 11.78 billion (UAH 500 billion)). Given the military confrontation with Russia and the constant budget deficit, Ukraine cannot neglect such potential revenues.

2) Ukraine should maintain its policy of harmonized excise taxes on cigarettes, cigarillos and heated tobacco products (HTUs) to protect young people from being attracted to tobacco use

In 2021, Ukraine was one of the first countries to equalize the excise tax on heating tobacco products to the level of traditional cigarettes. This has become an international best practice: in the first year, the State Budget of Ukraine received 6 times more revenues (UAH 10.2 billion in 2021 vs. UAH 1.7 billion in 2020), and in 2023, such revenues from the RET amounted to UAH 14.4 billion.

In addition, this has reduced the affordability of harmful tobacco products, which the tobacco industry invests enormous resources in promoting among young people.

While the Ministry of Finance proposes a 20% tax preference for HTPs due to their “potentially reduced risk,” the World Health Organization in Ukraine, upon request, emphasizes that there is no evidence that heated tobacco products are less harmful than traditional tobacco products.

The WHO gives an unequivocal answer that international public health policies insist on equal taxation of cigarettes and HTPs: “(…) the proposed [Draft Law 11090] tax cuts on HTPs are not consistent with these recommendations contained in the WHO report. HTPs are tobacco products and have been recognized as tobacco products by the COP8. Prior to this, COP8 adopted a decision that equates HTPs with tobacco products, and thus all provisions of the FCTC (including taxation) should apply to HTPs.”

The market for HEVs in Ukraine is 80% controlled by a company that is an international sponsor of the war. Therefore, this preference is a multibillion-dollar “donation” into the pocket of the largest taxpayer in Russia.

3) Draft Law 11090-3 takes into account the realities of Ukraine’s integration into the EU

The European Commission is planning to revise Directive 2011/64/EU and, accordingly, the minimum excise rate on tobacco products. The unofficial draft of the revised Tobacco Taxation Directive states that the price for 1000 packs is 180 euros.

The plan to increase excise taxes to EUR 120 in 2028, proposed in draft law 11090-3, will help Ukraine prepare for the new EU requirements.

The greatest value is people, the greatest wealth is health

Today, raising the excise tax on tobacco products is a necessity for Ukraine. Despite the war, we have to plan for the future, protect the health of our people, and think ahead.

Increasing the excise tax is the most effective way to reduce the prevalence of tobacco and nicotine consumption. According to World Bank estimates, a 10% increase in the cost of a pack of cigarettes can reduce the consumption of illicit tobacco products by 6-8% in low- and middle-income countries, including Ukraine.

Draft Law 11090-3 takes into account past experience, the current state of affairs, and future prospects for both international policy and public health protection. 100 thousand avoidable deaths, 100 thousand lives that can be saved – this is the task of a state that wants to survive.

120 euros per 1,000 units of murderous products is the lowest level of excise tax that Ukraine can afford, given the demographic crisis and daily losses at the front.