“The Verkhovna Rada of Ukraine / photo – UNIAN, Denys PryadkoThe business community, united by the American Chamber of Commerce in Ukraine and the European Business Association, calls on the Verkhovna Rada to support in the second…”, — write: www.unian.ua
Verkhovna Rada of Ukraine / photo – UNIAN, Denys PryadkoThe business community, united by the American Chamber of Commerce in Ukraine and the European Business Association, calls on the Verkhovna Rada to support the second reading of the government’s version of draft law No. 11090 “On Amendments to the Tax Code of Ukraine Regarding Revising Excise Tax Rates on Tobacco Products” in terms of the approach to the mechanism for determining and the size of excise rates on tobacco products, in particular regarding the immutability of the ad valorem rate.This is stated in the appeal of business associations.
The business emphasizes that raising, even gradually, the ad valorem rate will lead to an increase in the illegal market and less predictability of budget revenues, as well as to general negative consequences for the entire legal market of tobacco products.
“The European model of excise taxation of tobacco products has been implemented in Ukraine. According to Directive 2011/64, a mixed system is used, the essence of which is to apply both a specific rate to a product unit and an ad valorem rate to the maximum retail price. If we look at European practice, from 2010 to In 2024, 22 out of 28 EU countries reduced the ad valorem rate and increased it accordingly In particular, in the Netherlands, the ad valorem was reduced to 5%, and in Denmark, Portugal, Sweden it is indicative that France, where the ad valorem rate is the highest (55%), remains one of the highest levels of illegal trade in Europe,” the appeal reads.
In addition, an increase in the ad valorem rate will lead to a shortfall in the planned revenues of the state and local budgets due to a reduction in supply and demand for expensive products.
European legislation does not have a strict framework for the size of the ad valorem rate. The Association Agreement between Ukraine and the EU and other international obligations do not require Ukraine to increase the ad valorem component. Moreover, the increase in the ad valorem rate does not bring Ukraine closer to fulfilling the obligation regarding the minimum excise tax rate of 90 euros/1000 pieces.
“In order to preserve the positive dynamics of the decrease in the level of the illegal tobacco market, which was shown by the latest study by KANTAR Ukraine, and which was achieved with extraordinary efforts, we ask that the position of the united business community be taken into account when making the final decision regarding the revision of excise tax rates on tobacco products within further consideration and adoption of draft law No. 11090”, – note the business associations.
As reported, the level of illegal trade in tobacco products in Ukraine remains at a high level – 14.6%. However, over the last year, it has significantly decreased, because at the end of 2023 it was 25.7%.
This became possible thanks to the active actions of law enforcement and control bodies, as well as the decisive position of the parliamentary temporary investigative commission (TCI) on economic security.
The American Chamber of Commerce noted that thanks to the efforts and leadership of people’s deputies, in particular Danylo Hetmantsev, Halyna Yanchenko, and Yaroslav Zheleznyak, law enforcement and fiscal authorities, in 10 months of 2024, it was possible to ensure receipt of $1.67 billion from detinization to the state budget.
Draft Law No. 11090 provides for the transfer of excise tax rates on tobacco products to euros, the extension of the current excise schedule until 2028 to finally reach the minimum level established in the EU (90 euros per 1,000 cigarettes), as well as the implementation of European practice regarding the taxation of tobacco waste for heating in terms of differentiation of excise rates compared to cigarettes.
The International Monetary Fund and the European Commission supported the need to establish different tax rates on cigarettes and tobacco sticks for heating in Ukraine, which is provided for by the relevant government draft law.