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Tax Gap of Heated Tobacco Products in Ukraine

Heated tobacco products were introduced in Ukraine in 2018 with the launch of Glo by British American Tobacco. Until 2020, heated tobacco was not included in the excise tax code. It was taxed by default under the category of “other smoking products.” During the 2020 fiscal year (FY 2020, from January 1, 2020 to December 31, 2020), the excise rate on tobacco products was directed by the “7-year schedule” (Amendment Law #2245-VII). From January 1, 2020, the tax rate on this category was a specific excise based on the weight of tobacco, equal to UAH 1139.76 per kilogram. 

In February 2020, the tax code was amended to create a new tax category for heated tobacco, which went into effect on January 1, 2021 (Law 466-IX). A specific excise is applied to heated tobacco and as of January 2021, the rate is UAH 1,456.33 (EUR 50) per 1,000 sticks. This is set to increase to UAH 1,747.6 (EUR 60) per 1,000 sticks on January 1, 2022, UAH 2,097.12 (EUR 72) per 1,000 sticks on January 1, 2023, UAH 2,516.54 (EUR 85) per 1,000 sticks on January 1, 2024, and UAH 3,019.85 (EUR 102) per 1,000 sticks on January 1, 2025.

Ukraine applies a mixed excise tax system with tax tiers based on characteristics (filtered/non-filtered) to cigarettes. During the 2020 fiscal year (FY 2020, from January 1, 2020 to December 31, 2020), the excise rate on tobacco products was directed by the “7-year schedule” (Amendment Law #2245-VII). During FY 2020, the specific excise tax rate was UAH 907.2 per 1,000 sticks, the ad-valorem rate was 12% of the “maximum retail sales price,” and the minimum excise was UAH 1,213.61 per 1,000 sticks. The specific excise is set to increase to UAH 1,088.64 per 1,000 sticks in 2021, UAH 1,306.37 per 1,000 sticks in 2022, UAH 1,567.64 per 1,000 sticks in 2023, and UAH 1,881.17 per 1,000 sticks in 2024. The minimum excise is set to increase to UAH 1,456.33 per 1,000 sticks in fiscal year 2021, UAH 1,747 per 1,000 sticks in fiscal year 2022, UAH 2,097.12 per 1,000 sticks in fiscal year 2023, and UAH 2,516.54 per 1,000 sticks in fiscal year 2024.

Note: In addition, Ukraine signed in March 2014 an Association Agreement to follow the European Commission’s Directive on the structure and rates of excise duty applied to manufactured tobacco (Directive 2011/64/EU), which requires Members States to levy a minimum excise duty on cigarettes that must consist of a mixed system including an ad-valorem and a specific excise. Under the Directive, the overall excise duty must be at least EUR 90 per 1,000 sticks, and represent at least 60% of the weighted average retail selling prices (Art. 10(2)).   

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Last Updated Mar. 1, 2021