An Open Statement to the International Monetary Fund, the U.S. Embassy in Ukraine and the EU Delegation to Ukraine

Government revenues collection from tobacco excise should be made through de-shadowing rather than via pressure toward compliant businesses

The primary structural risk for Ukraine’s State Budget remains the illicit cigarettes market. Following record-high illicit trade levels in 2023, G7 ambassadors urged Ukraine to strengthen enforcement. Despite certain successes in 2024, Kantar Ukraine’s monitoring shows the illicit share stabilizing at 15.4% of total market volume in July 2025 (vs. 16.2% in April). At this level of illicit cigarette products on the Ukrainian market, the annual losses to the State Budget of Ukraine due to unpaid taxes are estimated at UAH 25.6 billion, and the size of the shadow cigarette market is 5.3 billion cigarettes in 2025.

Based on industry’s current estimations, the gap in the state revenues collection from excise tax on tobacco products this year (expected fact vs. State Budget target) may reach nearly UAH 7 billion — driven both by the rise in illicit trade and unexpected increase of the excise tax target in August 2025 by the Parliament of Ukraine (+UAH 8.8 billion).

Strengthening enforcement against illicit trade is a more sustainable and effective way to secure excise tax revenues from tobacco products than increasingly directing pressure toward compliant businesses that already pay significant amount of taxes. This would both safeguard fiscal stability as well as support Ukraine’s EU integration process and fulfilling commitments with IMF.