6. Tobacco taxes, revenue and prices
Taxes
The current level of tobacco taxes in Ukraine is presented in Table 6.
Table 6. Excise tobacco taxes and duties in Ukraine in 2006
| Product | Specific excise tax | Advalorem excise tax | Import duty (privileged) | Import duty (full) |
| Cigars, cigarillos (for 100 pieces) | 20 UAH | 8% | 5 EURO | 10 EURO |
| Filter cigarettes (for 1000 pieces) | 11,5 UAH | 8% | 3 EURO | 5 EURO |
| Non-filter cigarettes
(for 1000 pieces) |
5 UAH | 8% | 3 EURO | 5 EURO |
| Smoking tobacco (for 1 kg) | 10 UAH | 8% | 2,5 EURO | 5 EURO |
| Smokeless tobacco (for 1 kg) | 10 UAH | 8% | 2,5 EURO | 5 EURO |
| Raw tobacco (for 100 kg) |
0 | 0 | 1 EURO | 2 EURO |
The excise taxes for domestic and imported cigarettes are equal. The VAT for cigarettes is equal to the VAT for all other goods (at present 20%). The history of the excise tax policy in 1993-2001 is discussed in detail in (http://adic-ukraine.narod.ru/adic/reports/econ/ch-2/2-1.htm). Since January, 2001 the specific excise tax rates were unchanged, only excise for filter cigarettes was increased to 11.5 UAH per 1000 cigarettes since July 1, 2003. Taking into account the inflation in 2001-2005, the real excise rates decreased even for filter cigarettes. It is much contrasted with the situation in Russia where tobacco excise tax rates it the same years increased annually, at least in line with inflation (Table 7).
Table 7. Changes of excise tax rates for tobacco products in Russia (in rubles)
| 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | |
| Filter cigarettes
(per 1000 pieces) |
35 | 39,2 | 50 + 5%* | 60 + 5%** | 65 + 8%** | 78 + 8%* | 100 + 5%***, but not less than 115 |
| Non-filter cigarettes
(per 1000 pieces) |
10 | 11,2 | 19 + 5%* | 23 + 5%** | 28 + 8%** | 35 + 8%* | 45 + 5%***, but not less than 60 |
| Cigars
(for a piece) |
10 | 11,2 | 14 | 15 | 16,35 | 17,75 | |
| Cigarillos
(per 1000 pieces) |
75 | 84 | 157 | 170 | 200 | 217 | |
| Pipe tobacco
(for 1 kg) |
405 | 454 | 620 | 676 | 300 | ||
| smoking tobacco
(for 1 kg) |
166 | 186 | 254 | 277 | 300 |
* - percentage of wholesale price
** - percentage of wholesale price without the excise and VAT
*** - percentage of the maximal retail price
In July 1999, an additional tax for the Pension Insurance Fund was introduced in Ukraine. It was equal to 5% of wholesale price. In May 2001, the parliament changed the pension tax from advaloreum to a specific one, and presently it is 2.5 UAH per 1000 filter cigarettes and 1.5 per 1000 non-filter cigarettes. Since January 2004 the Pension Insurance Fund tax was replaced to the advalorem excise tax, which was 5% in 2004, 7% in January-March, 2005 and 8% since April, 2005. According to the law, the advalorem tax is taken “as percentage of the turnover of commodity sale”. Actually it means that the tax rate is based not on the retail price, but on the wholesale price.
The calculations based on legal sales in 2005 revealed the following situation. In 2005 101.6 billion filter and 14.7 billion non-filter cigarettes were sold. It means that specific tax revenue should be equal to: 101.6 mln * 11.5 UAH + 14,7 million * 5 UAH = 1242 million UAH. General tobacco revenues were 1,782 million UAH and it means that advalorem tax revenue was 540 million UAH, or on average 4.64 UAH per 1000 cigarettes or 0.093 UAH per a pack of 20 cigarettes. Average weighted retail price for a pack in 2005 was 2.06 UAH (see Table 5), so the advalorem percentage to retail price was only 4.5%, but not 8%, as stipulated by law.
Revenue
The excise tax rates in 1996-1999 increased annually, and the budget revenue also substantially increased: from UAH54 million (USD30 million) in 1996 to UAH522 million (about USD126 million) in 1999. The excise tobacco tax revenue in 2000 decreased to UAH446 million (USD82 million), despite the increase of cigarette production. It is worth to note, that in 1999-2003 the excise tax actually was taken in two forms: general excise and tax for the Pension Insurance Fund (see above). So to see the revenue trend we need to consider sum of these two taxes (Table 8).
Table 8. Tobacco excise revenues in Ukraine
| 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |
| Excise | 54 | 129 | 287 | 522 | 446 | 583 | 684 | 865 | 1465 | 1782 |
| Pension tax | - | - | - | 30 | 128 | 143 | 178 | 220 | - | - |
| Total | 54 | 129 | 287 | 552 | 574 | 726 | 862 | 1085 | 1465 | 1782 |
Prices
In 2000-2005 cigarette prices (for a pack of 20 pieces) decreased (see Table 5). For non-filter cigarettes even nominal price decreased: from UAH0.925 in 2000 to UAH0.745 in 2005. For filter cigarettes nominal price increased from UAH2.10 in 2001 to UAH2.24 in 2005, just by 7% in four years, while the inflation rate only in 2005 was 10%.
Tax percentage in retail price in 2005 was calculated the following way. Average retail price of a pack of non-filter and a pack of filter cigarettes is UAH0.75 and UAH2.24 respectively, VAT is 20%, specific tax is UAH0.10 (non-filter) UAH0.23 (filter), advalorem tax is 5% of retail price (see above the estimation of real advalorem tax rate). So total tax for non-filter cigarettes is: 0.125 (VAT) + 0.10 (specific) + 0.04 (advalorem) = 0.265 UAH or 35% of retail price. For filter cigarettes it is: 0.373 (VAT) + 0.23 (specific) + 0.112 (advalorem) = 0.715 UAH or 32% of retail price. The tax percentage is much lower than in EU, where it is not less than 70%.
Content 'Tobacco or Health in Ukraine. Economic issues, 2006 update'
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