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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. Up 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, the excise rate on tobacco products was directed by the “7-year schedule” (Amendment Law #2245-VII). In February 2020, the tax code was amended to create a new tax category for heated tobacco, which went into effect on January 1st, 2021 (Law 466-IX). A specific excise is applied to heated tobacco and as of January 2021, is based on the number of sticks. It has increased every year. Since January 1st, 2023, the excise is UAH 2,097.12 per 1000 sticks. It is set to increase to UAH 2,516.54 per 1000 sticks on January 1st, 2024, and UAH 3,019.85 per 1000 sticks on January 1st, 2025.
Ukraine applies a mixed excise tax system with tax tiers based on characteristics (filtered/non-filtered) to cigarettes. The excise rate on tobacco products is currently directed by the “7-year schedule” (Amendment Law #2245-VII). Since January 1st, 2023, the specific excise tax rate for cigarettes has been UAH 1,567.64 per 1000 cigarettes, the ad valorem rate is 12% of the “maximum retail sale price,” and the minimum excise is UAH 2,097.12 per 1000 cigarettes. The specific excise is set to increase to UAH 1,881.17 per 1000 cigarettes in 2024. The minimum excise is set to increase to UAH 2,516.54 per 1000 cigarettes 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. This excise system must consist of a mixed system including an ad valorem and specific excise. Under the Directive, the overall excise duty must be at least EUR 90 per 1000 sticks and represent at least 60% of the weighted average retail selling prices (Art. 10(2)).
Sources:
- The Parliament of Ukraine, “On amendments to the Tax Code of Ukraine and some legislative acts of Ukraine to ensure the balance of budget revenues in 2018” (Law #2245-VIII)
- The Parliament of Ukraine, “On Amendments to the Tax Code of Ukraine to Improve Tax Administration, Eliminate Technical and Logical Inconsistencies in Tax Legislation” (Law #466-IX)
- European Commission: Association Agreement
- European Commission: On revising the EU Directive to include new products and revise the minimum excise duty
Last updated Sept. 1, 2023