Tobacco taxes

In 1993, Ukraine had ad valorem tax on tobacco products and this tax represented 70% of the wholesale price. This tax was gradually decreased. First reduction brought the tax down to 50% of the wholesale price for cigarettes with filters and to 35% of the wholesale price for cigarettes without filters. In 1995, the decrease continued so that tobacco taxes represented only 40% of the wholesale price for cigarettes with filters and 10% of the wholesale price for cigarettes without filters. 

In 1995 the government introduce excise tax for imported cigarettes as 6 ECU for 1000 pieces. But due to the tobacco lobby the parliament reduced this tax in three times in February 1996. According to this parliament decision excise taxes for both domestic and imported cigarettes were 2 ECU per 1000 pieces, while for cigarettes without filter the tax was 0,5 ECU for 1996, and 1,0 ECU for 1997. The excise taxes for domestic and imported cigarettes are equal. The VAT for cigarettes is equal to VAT for all other goods (at present 20%).
In 1998 the parliament decided to eliminate the difference between the excise tax for filtered and non-filtered cigarettes and raised excise taxes to 2.5 ECU per 1000 cigarettes (about 2.9 US$ per 1000 cigarettes). Due to crises of the local currency this tax based on ECU was increasing to the point that it was considered too high and was subsequently changed in November 1999 to be based on local currency - 10 hryvna (UAH) per 1000 cigarettes. This tax rate was equivalent to the previous tax rate in ECU (2.5 ECU per 1000 cigarettes) based on the currency exchange rate from summer 1999. However, in late 1999 and in 2000 it was equal to 1.8 US$.

Tax rate for non-filter cigarettes was decreased to 7 UAH till July, 1 2000 to reduce smuggling of non-filter cigarettes from Russia. This cut in excise tobacco taxes did not bring the expected reduction of smuggling from Russia, but substantially decreased government revenue from tobacco in 2000 (by about 40 million dollars). Despite this fact and steady increase of the revenue in second half of 2000 (when the rate for non-filter cigarettes was 10 UAH) the parliament decreased the non-filter cigarette tax rate to 5 UAH in December 2000, while the government was against it. 

In July 1999 additional tax for Pension Insurance was introduced. It is equal to 5% of wholesale price. According to the national survey of November, 2000 52% of the respondents support introduction of this tax, 33% consider that this tax needs to be increased and only 15% have told that this tax needs be to be reduced or to be cancelled.

Import duties for cigarettes in 1998 were increased from 2.5-5 ECU per 1000 pieces to 3-5 ECU.

Excise tobacco taxes and duties in Ukraine

Revenue