Economic experts advocate an increase in the ad valorem excise tax rate on tobacco products from 12%, as there is an imbalance in the taxation of expensive and cheap cigarettes. Vitaliy Kulyk, director of the Center for Civil Society Studies, wrote about this .
"We have equalized the taxes on Prima and Marlboro," the expert writes.
According to Kulyk, Ukraine's budget has lost more than UAH 100 billion since Mykola Azarov's government reduced the ad valorem rate from 25% to 12% in 2013.
"Over the past 11 years, Ukraine has lost more than UAH 100 billion that could have been used to strengthen our country's defense," Kulyk said.
The increase in the ad valorem rate is supported by and economic expert Denys Bezlyudko.
"The demand for the premium segment is mostly inelastic. That is, for a person with a fairly large income (unlike the majority of the population), it does not matter if the amount of excise tax he pays increases. He is unlikely to switch to the conditional Vatra. But the Ukrainian budget will receive additional revenues," he explains.
Bezlyudko added that since 2013, the situation has been "cemented": bills that would raise the rate are simply not submitted to the Verkhovna Rada session hall.
As reported, Ukraine currently has the following excise taxation scheme for the tobacco market: minimum excise duty (UAH 2,516.54 per 1000 units), specific rate (UAH 1,881.17 per 1000 units) and ad valorem rate (12%). The nuance is that the ad valorem is now invisible, and it does not affect the taxation of the premium segment.
For example, on a pack of cigarettes costing UAH 60, the total excise tax paid by companies (or, more precisely, by smokers) is UAH 50.33 (UAH 60.00 x 12% = UAH 7.2 - ad valorem component of the excise tax; UAH 37.62 - specific excise tax rate (37.62 + 7.2 = UAH 44.82 - the amount of excise tax per pack of cigarettes). However, UAH 44.82 is less than UAH 50.33 (the minimum excise tax liability), so UAH 50.33 of excise tax per pack is payable to the budget.
And from a pack of cigarettes worth UAH 106 - UAH 50.34 (UAH 106.00 x 12% = UAH 12.72 - ad valorem component of the excise tax; UAH 37.62 - specific excise tax rate; 37.62 + 1 72 = UAH 50.34 - amount of excise tax per pack of cigarettes). UAH 50.34 is more than UAH 50.33 (the minimum excise liability), so UAH 50.34 of excise tax per pack is payable to the budget.
In Europe, ad valorem excise tax rates on cigarettes range from 25% to 50% (in some countries, even higher).