Ukraine is actively pursuing European integration, aligning its legislation with EU standards. However, a significant portion of the country’s tobacco market remains in the shadows, with an estimated 17.6% of sales occurring illegally.
This illicit trade poses risks not only to the economy but also to Ukraine’s aspirations for EU membership. Alexander Farkosh, CEO of JTI Ukraine, discussed the implications of the shadow market in his first interview since taking on the role.
Key Points:
- The state lost approximately 26.5 billion UAH in tax revenue in 2025 due to the shadow market, with potential losses of 32 billion UAH projected for 2027.
- A collapse in the supply of legal products could occur as early as November 2026 if the e-excise system is not fully tested by all market players.
- JTI paid 45 billion UAH in taxes in 2025 and continues to explore investment opportunities.
- New laws will not effectively combat the shadow market without strong independent institutions. Current efforts depend heavily on political will.
- Since the onset of the full-scale war, the company has allocated over 500 million UAH to support employees, communities, veterans, and humanitarian projects.
The shadow market has grown significantly since 2018, when illegal tobacco trade was below 5%. By October 2023, it peaked at 25.7% due to rising excise taxes and inadequate law enforcement. Despite efforts to reduce this figure to 12.6% in 2024, the trend reversed in subsequent years, highlighting the ongoing challenges.
Farkosh noted that the government could lose up to 32 billion UAH in tax revenue by 2027 if the current illegal market rate persists. “The government must protect the legal market from the shadow economy and smuggling,” he emphasized.
Regarding the implementation of electronic excise stamps, Farkosh expressed concerns about the readiness of the system, which is scheduled to launch on November 1, 2026. He pointed out that if producers are prepared but retailers are not, the distribution of legal products could be severely impacted.
Moreover, he criticized the lack of effective regulatory measures, stating that simply introducing new laws without strong institutions will not address the issue of illicit trade. He highlighted the need for a transparent and predictable regulatory environment to foster investment and business growth.
Farkosh also discussed the importance of maintaining a stable regulatory framework for attracting international investment. He noted that while JTI has been able to secure ongoing support from its headquarters, the company competes for resources within the broader corporate structure.
In terms of corporate social responsibility, JTI has invested over 500 million UAH in community support and humanitarian efforts since the war began. This includes initiatives for psychological rehabilitation for veterans and assistance for internally displaced persons.
As Ukraine continues to adapt its tobacco regulations to meet EU standards, Farkosh emphasized the need for a balanced approach that considers local market conditions. He warned that the current high level of illicit trade could hinder Ukraine’s EU accession prospects, as it presents significant risks to the integrity of the European market.
In summary, the challenges facing Ukraine’s tobacco industry underscore the complexities of transitioning to a regulated market while striving for European integration. The interplay between legal and illegal trade remains a critical issue that requires concerted efforts from both the government and the private sector.
Ukraine's tobacco market struggles with a significant shadow economy, impacting tax revenues and EU integration efforts. JTI's CEO highlights the need for effective regulation and institutional strength to combat illicit trade.