№ 5/2021

Fìnansi Ukr. 2021 (5): 82–96https://doi.org/10.33763/finukr2021.05.082

TAX POLICY

POLIAKOV Mykhailo ¹

¹Philip Morris Ukraine

Areas for improvement in the tobacco excise policy in Ukraine

The article analyses the ways to improve tobacco excise taxation in Ukraine considering a respective EU Member States experience, consequences of national reforms held in previous years, as well as challenges and potential threats caused by the pandemic. A worsening economic situation and the recent decline in income compounded the existing problems related to tobacco taxation in Ukraine. The increase of excise tax rate on cigarettes by 20% annually till 2025 and an inconsistent decision on more than four times increase of excise tax rates on electronically heated tobacco products (EHTP) pose a risk of boosting illicit trade. The advance payment of excise tax on imported tobacco products, in turn, negatively affects finances of importers due to the working capital diversion. Following that, the priority steps with regard to the excise policy of Ukraine should be aimed at: 1) revision of the existing plan of increasing tax rates on cigarettes by slowing down the growth of tax burden and simultaneous expansion of the plan till 2028; 2) correcting the burdensome reform on excise taxation of EHTP to establish more liberalized tax regime 3) switching to payment of excise tax on imported tobacco products during customs clearance. The mentioned initiatives taking into account a strong need to improve a fiscal situation in Ukraine due to the spread of COVID-19 will reduce a negative impact of increasing excise tax rates and administration procedures on tobacco industry. They will also prevent the growth of illicit trade in tobacco products and thus will contribute to improving the efficiency of tax system and strengthening the confidence of business entities.

Keywords:tobacco products, cigarettes, electronically heated tobacco products, tobacco market, excise tax, tax burden

JEL: Н21, Н25

Poliakov M. . Areas for improvement in the tobacco excise policy in Ukraine / M. Poliakov // Фінанси України. - 2021. - № 5. - C. 82-96.

Article original in Ukrainian (pp. 82 - 96)

Download

Downloads :76

1. Laffer, A. B. (2014). Tobacco Taxation: Theory and Practice. San Francisco: The Laffer Center at the Pacific Research Institute.
2. European Commission. (2019, January). Study on Council Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco (Final Report). Retrieved from ec.europa.eu/taxation_customs/sites/taxation/files/annexes-to-the-study-on-the-tobacco-taxation-directive-2019_en.pdf.
3. Korotun, V. I. (Ed.). (2018). The dialectic of reforming the excise taxation of tobacco products in Ukraine: the European integration aspect. Kyiv: Alerta [in Ukrainian].
4. Novytska, N. V. (Ed.). (2020). Modernization of the tobacco product control system. Irpin: Khmelnytskyi [in Ukrainian].
5. Sokolovska, A. M. (Ed.). (2017). Tax harmonization in Ukraine in the context of the implementation of the Association Agreement between Ukraine and the EU. Kyiv: SESE “The Academy of Financial Management” [in Ukrainian].
6. Olefir, V. (2016). Results and prospects of raising excise tax rates on alcoholic beverages and tobacco products. Economist, 7, 8–11 [in Ukrainian].
7. Pasichnyi, M. D. (2017). The Strategy of Excise Taxation of Tobacco Products in Ukraine. Business Inform, 6, 220–226 [in Ukrainian].
8. Serebrianskyi, D., & Vdovychenko, A. (2017). Fiscal Consequences of Excise Tax Forecasting on Domestic Tobacco Products in Ukraine. Kyiv: Office for Financial and Economic Analysis in the Verkhovna Rada of Ukraine. Retrieved from tobaccocontrol.org.ua/ uploads/elfinder/documents%20for%20news/TobaccoWEB_A5_10_web.pdf [in Ukrainian].
9. Sokolovska, A. M., & Petrakov, I. V. (2017). Harmonizing the Administration of Excise Tax in Ukraine in the Process of Implementation of the Association Agreement. Business Inform, 11, 389–394 [in Ukrainian].
10. Sokolovska, A., & Rainova, L. (2017). Harmonization of excise tax on tobacco products. Economy and Forecasting, 2, 93–115. doi.org/10.15407/eip2017.02.093
11. EU Council. (2011, June 21). Directive 2011/64/EU on the structure and rates of excise duty applied to manufactured tobacco. Retrieved from www.minjust.gov. ua/45885 [in Ukrainian].
12. KPMG. (2011, August 22). Project Star 2010 Results (KPMG Report). Retrieved from www.pmi.com/resources/docs/default-source/pmi-sustainability/star-report-2010. pdf?sfvrsn=1f02b0b5_0.
13. Ministry of Finance Republic of Latvia. (n. d.). Excise Duty. Retrieved from https:// www.fm.gov.lv/en/s/taxes/excise_duty/.
14. Ukrainian Institute of the Future. (2020). Smuggling. Cigarettes. Retrieved from uifuture.org/reports/kontrabanda-sigareti/ [in Ukrainian].
15. Kantar. (2020, October). Market research of the illicit trade in tobacco products. Retrieved from tns-ua.com/wp-content/uploads/2021/02/Kantar_AIT_w48_industry_ media-part_ukr.pdf [in Ukrainian].
16. Ukrinform. (2020, May). During the last three years (2017-2019), the state budget underreceived almost UAH 30 billion due to the illegal tobacco market. Retrieved from www.ukrinform.ua/rubric-economy/3016862-za-tri-roki-budzet-vtrativ-majze-30- milardiv-cerez-sirij-rinok-tutunu-bakanov.html [in Ukrainian].
17. State Fiscal Service of Ukraine. (2021, April 8). In the first quarter of 2021, SFS officers withdrew from the illicit trafficking of tobacco products in the amount of 226.6 million hryvnias. Retrieved from sfs.gov.ua/media-tsentr/novini/394060.html [in Ukrainian].
18. State Treasury Service of Ukraine. (n. d.). Reports on consolidated budget revenues. Retrieved from www.treasury.gov.ua/ua/file-storage/vikonannya-derzhavnogo-byudzhetu [in Ukrainian].
19. U. S. Food & Drug Administration. (2020, July 7). FDA Authorizes Marketing of IQOS Tobacco Heating System with ‘Reduced Exposure’ Information. Retrieved from https:// www.fda.gov/news-events/press-announcements/fda-authorizes-marketing-iqos-tobacco-heating-system-reduced-exposure-information.
20. Gambaccini, P. (2021, March 2). European Commission expected to revise tobacco excise Directive. Retrieved from vaporproductstax.com/european-commission-expected-to-revise-tobacco-excise-directive/.
21. Koschuk, T. V. (Ed.). (2020). Tax regulation of the tobacco market in terms of its transformation. Irpin: Khmelnytskyi [in Ukrainian].
22. Federation of Employers of Ukraine. (2021, March 1). Gradual increase of the excise tax rate on TVEN will increase budget revenues. Retrieved from fru.ua/ua/media-center/news/fru/postupove-pidvishchennya-stavki-aktsizu-na-tven-zbilshit-dokhodi-byud zhetu?fbclid=IwAR0x6jX6zHCikvR_jZH-PeLWwaE0XoogMTws4bpe6DFtw2ST9Orvu2c1 G8o [in Ukrainian].
23. Koschuk, T. (2019). Ways to improve the procedure of paying the excice duty on tobacco products in Ukraine. Finance of Ukraine, 4, 68–78 [in Ukrainian]. doi.org/10.33763/finukr2019.04.068