Conclusions

1. 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.

2. The international and Ukrainian experiences clearly indicate that increases in tobacco taxes will lead to a reduction of smoking and increases 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 an increase in smoking.

3. The smuggling of cigarettes produced in Ukraine to Western and Central European countries, while gives some benefits to the Ukrainian budget, creates political problems and spoils the international image of Ukraine.

4. 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.

5. The tobacco companies play a critical role in tobacco smuggling.

6. A more 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.

Chapter 5