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PHILIP MORRIS UKRAINE: IF EXCISE TAX RISES BY 320%, LEGAL MARKET OF HEATED TOBACCO PRODUCTS WILL FALL BY 3 TIMES
Open4business, Kyiv, Ukraine,
Mar 10, Wed, 2020
Philip Morris Ukraine this year predicts a decline in the legal market of heated tobacco products by 3.1 times compared to last year, to 1.5 billion pieces, due to an increase in the excise tax on these products from January 2021 by 320%, Financial Director of Philip Morris Ukraine Maksym Barabash said at a press conference in Interfax-Ukraine.
“A one-time increase in excise taxes by 320% from January 1 requires a price increase of approximately UAH 29 (for a pack of heated tobacco products), not including the price increase due to inflation and the devaluation of the hryvnia. If we transfer this price increase to consumers, the price will increase to 80-90,” he explained.
CEO of the company Kostas Salvaras said that Philip Morris Ukraine supports amendments to law No. 4278, proposing an increase in the excise tax on heated tobacco products by 200% with its further growth by 30% in 2022-2025 instead of a one-time increase by 320%. These changes in the form of amendment No. 55 were adopted in February by the parliamentary committee on finance, taxation and customs policy.
According to the calculations of Philip Morris Ukraine, a smoother increase in the excise tax will help protect the legal market, the capacity of which, if this amendment is adopted, will grow this year by 6.3% compared to 2020, to 5 billion units.
The company also expects that in the event of a gradual increase in tax, the growth of revenues to the state budget in 2021 will not be lower than UAH 4.8 billion planned by the Ministry of Finance, and UAH 6.5-7.5 billion in 2022.
Barabash clarified that a one-time increase in excise tax by 320% will lead to a 1.5-fold increase in prices for the products, and will make illegal import of heated tobacco products four times more profitable than smuggling regular cigarettes. The company’s financial director estimated the profit from the illegal import of one heated tobacco product box at $ 500-800.
In addition, according to him, the equalization of the excise tax rate for heated tobacco products and ordinary cigarettes to 320% will entail a return of users of devices for heating tobacco to cheaper and more harmful nicotine-containing products – cigarettes. He noted that this decision contradicts European practice, since on average in the EU countries the excise tax on heated tobacco products is 72% lower than the excise tax on cigarettes, while in Ukraine this figure is 28%.
Barabash clarified that a sharp increase in the excise tax on this product would jeopardize UAH 4.2 billion already invested in the development of the Ukrainian infrastructure of the IQOS brand, which employs more than 2,000 people. It will also make it impossible to localize the production of heated tobacco products in Ukraine, which could reduce the price of this product.
As reported, Philip Morris International is one of the world’s largest tobacco manufacturers. It produces cigarettes in more than 50 factories and sells them in 180 countries.
The company has been operating in Ukraine for over 20 years. In Ukraine, Philip Morris owns a factory in Kharkiv region, the company employs over 1,300 people.
In 2020, the company reduced the shipment of cigarettes in Ukraine by 4.3% compared to 2019 due to a general market decline, which was partially offset by an increase in the market share of heated tobacco products.