Tobacco smuggling in Ukraine

Krasovsky KS, Rud GV.

12th World Conference on Tobacco or Health, Helsinki, Finland, 2003. Abstracts, pages 337-338.

While cigarette smuggling in Ukraine is a serious problem and tax increases can lead to an increase in smuggling, the scale of the problem has been significantly overstated, particularly when it comes to the impact of smuggling on changes in cigarette smoking and tax revenues.

The estimates of the amount of annual budget loss caused by smuggling vary from 20 million to up to 200 million US dollars. Our analysis reveals that the budget loss as a consequence of tobacco smuggling did not exceed 40 million USD in 2000 and 20 million USD in 2001. In the same years, the annual budget incomes from Ukrainian cigarettes smuggled to other countries could be up to 25 million USD.

The smuggling of cigarettes produced in Ukraine to the Western and Central European countries, while giving some benefits to the Ukrainian budget, creates political problems and spoils the international image of Ukraine. It is estimated that with increased tax rates the budget will get more from even decreased domestic sales than from smuggling to other countries.

Ukraine is used for the transit of smuggled cigarettes both legally to high-risk smuggling countries, and illegally, such as smuggling cigarettes back to the country of their production.

The international and Ukrainian experiences clearly indicate that increases in tobacco taxes will lead to a reduction of smoking and growth in tax revenues, even when they are accompanied by increases in cigarette smuggling, while reductions in taxes that are aimed at reducing the smuggling problem will lead to reduction in tax revenues and greater smoking.

The most appropriate response to the threat of smuggling is not a reduction (or even stabilization) of taxes, but the adoption and implementation of strong measures to counteract smuggling itself.