A 35% increase per pack. What will happen to cigarette prices following the rise in excise taxes?
How the anticipated increase in excise taxes on tobacco products will affect cigarette and heated tobacco product (HTP) prices for Ukrainians, how much manufacturers will profit from this, and what consequences it will have for the state budget, – in the material by RBC-Ukraine's financial editor Ruslan Kislyak.
Starting from January 1, Ukraine was supposed to implement excise taxes on tobacco products. The relevant draft law (№11090) was approved by the Verkhovna Rada on December 4, and by December 9, the document was sent for the president's signature, where it remains to this day.
Considering the frequent examples of prolonged delays in signing laws by the guarantor of the Constitution, as well as the fact that the law has been positively evaluated by business associations, relevant experts, and even IMF specialists, there is hope that the law will eventually be signed. According to the deputy head of the Rada's finance committee, Yaroslav Zheleznyak, due to the delay in signing the law, the budget has already lost over 700 million hryvnias since the beginning of the year.
Why raise excise taxes
The draft law №11090 was developed to replace the eight-year plan for increasing excise taxes on tobacco products, implemented in 2018. Under that plan, Ukraine was to raise the excise tax rates to 90 euros for 1000 cigarettes by 2025 as part of its European integration efforts. This commitment was made by Ukraine to the European Union. However, due to unaccounted influences on the hryvnia exchange rate, inflation, and devaluation factors, particularly those caused by the Covid-19 pandemic and the onset of Russia's full-scale war against Ukraine, by the end of the seven-year period, the excise tax rates only reached 60 euros instead of the planned 90 euros. Therefore, the schedule for increasing excise taxes had to be revised.
Thus, the target of 90 euros for 1000 cigarettes is planned to be achieved by 2028. At the same time, the excise tax on heated tobacco products (HTPs) is set to be increased to 72 euros for 1000 pieces by the same date. This refers to the so-called sticks used with devices like IQOS, Ploom, and glo.
The law stipulates the transition to calculating excise taxes on tobacco products in euros instead of the current calculations in hryvnias. This is done to avoid the impact of devaluation on the excise amount.
Additionally, the law provides for the conversion of excise tax calculations on liquids for electronic cigarettes to euros at a rate of 300 euros per 1 liter by 2025.
How will the rates be raised
If the law in its current edition comes into effect, then in 2025, the excise tax on cigarettes will increase by 35.4% to 78 euros for 1000 pieces. In 2026, the excise tax on cigarettes will rise by 5%, in 2027 by 4.8%, and in 2028 by 4.7%, reaching 90 euros for 1000 pieces.
Meanwhile, the excise tax on HTPs will increase by 22% to 70.4 euros for 1000 pieces in 2025. Subsequently – in 2026 and 2027 – it will grow by 0.5%, and in 2028 – by 1.2%, reaching 72 euros for 1000 pieces.
The difference between the excise tax amounts for cigarettes and HTPs in 2028 will be 25%, whereas currently, the excise tax for both cigarettes and HTPs in Ukraine is the same, standing at 57.6 euros for 1000 pieces, as explained by RBC-Ukraine's executive director of the NGO "Center for Civil Representation 'Life'" Dmitry Kupria.
Overall, the dynamics of excise tax increases on tobacco products until 2028 should look like this.
| 2024 (2516.54 UAH) | 2025 | 2026 | 2027 | 2028 | |
| Cigarettes | 20% | 35.40% | 5.10% | 4.80% | 4.65% |
| Cigarettes | 57.6 | 78 | 82 | 86 | 90 |
| HTP | 20% | 22.22% | 0.56% | 0.48% | 1.20% |
| HTP | 57.6 | 70.4 | 70.8 | 71.14 | 72 |
| Difference in excises, % | 0% | 11% | 16% | 21% | 25% |
How prices for cigarettes and HTPs will change
The head of the parliamentary committee on financial, tax, and customs policy, Daniil Getmantsev, notes in a comment for RBC-Ukraine that according to the declarations on excise tax for July-November 2024, the average maximum retail price of a pack of cigarettes (20 pieces in a pack) was 97.87 hryvnias. With the increase of the excise rate to 78 euros and at the euro exchange rate valid on July 1, 2024 (43.2658 hryvnias), the average price of a pack in 2025 will be 116.1 hryvnias. This is an 18.6% increase from the 2024 price.
"Regarding HTPs – the current price is 107.06 hryvnias. With the increase of the excise tax rate in 2025 to 70.4 euros, the price for a pack will be 120 hryvnias, or 12% more than the 2024 price,” Getmantsev calculates.
According to his projected estimates, in the following years, from 2026 to 2028, prices for cigarettes and HTPs will change approximately in line with the percentage increase of the excise tax in hryvnias for those respective years.
Similar price forecasts are voiced for RBC-Ukraine by representatives of global tobacco product manufacturers present in Ukraine. Acting director of corporate and legal affairs at "Imperial Tobacco" in Ukraine, Vadim Novosad, also expects that the price of a pack of cigarettes will change roughly in the same percentage as the increase in excise in hryvnia equivalent.
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