The illegal tobacco market could cost the government nearly 30 billion hryvnia, according to manufacturers
15 May 18:11
By the end of 2025, the budget had lost 26.5 billion hryvnia due to the illegal production and distribution of tobacco products. If the trend continues, this amount will rise to 28 billion hryvnia in 2026. This was stated by representatives of legal manufacturers during a webinar on combating the illegal trade in tobacco products, organized by the “Ukrtyutyun” Association, reports "Komersant Ukrainian".
“According to Kantar, in February 2026, the level of illegal cigarette trade accounted for 17.6% of the market. All of these products are manufactured within Ukraine, and two-thirds of the volume comes from two manufacturers. Dnipropetrovsk Oblast is the worst offender: it accounts for 19% of the country’s entire illegal market,” the report states.
Legal players—four international companies—paid 177 billion hryvnia in taxes in 2025 (7% of all budget revenues) and provided over 100,000 jobs.
Andriy Tanchak, Senior Regulatory Affairs Manager at BAT Ukraine, explained the financial logic behind the illegal market.
“Illegal operators produced 5 billion cigarettes. Even after all expenses, they are left with $100 million.”
According to him, shutting down the illegal market could replace all the additional taxes currently under discussion.
“If we shut down the illegal market, there would be no need to introduce any additional taxes,” he added.
Yevgen Kuzmenko, Regulatory Affairs Manager at JTI Ukraine, emphasized that the problem lies not in the absence of legislation, but in its enforcement.
“The current regulatory framework already contains a sufficient set of tools to combat the illegal market. The key focus should be on eliminating the schemes of unscrupulous manufacturers, who make up the majority of the shadow segment,” he stated.
He also warned against so-called “legislative spam”: new control measures are introduced faster than existing ones can take effect, which only increases pressure on legal businesses without affecting illegal players.
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According to him, effective law enforcement is what yields real results. This was confirmed by the actions of law enforcement agencies in 2024, when the size of the illegal market dropped significantly after semi-legal producers were shut down.
As manufacturers note, strengthening the institutional capacity of regulatory bodies is also important, since it is strong and independent institutions that directly influence the reduction of the shadow market and the replenishment of the budget. An important step in this direction is Bill No. 9364, which provides for increased liability for the illegal production and circulation of excise goods.
Vadym Novosad, Director of Corporate and Legal Affairs at Imperial Brands, listed indicators of illegal products.
“First, a suspiciously low price (less than 100 hryvnias, since the taxes on a pack alone amount to about 100 hryvnias). Second, the absence of a Ukrainian excise stamp, as well as a health warning in a foreign language, and the same 12-digit alphanumeric code on different packs within a single carton,” noted Vadym Novosad.
93% of the vape market is in the shadows
Alexander Prokhorovich, Fiscal Policy Manager at Philip Morris Ukraine, presented a separate overview of the e-cigarette (vape) market.
According to Kantar, 93% of the vape market is illegal, and state budget losses in 2025, according to expert estimates, reached 7.6 billion UAH, and, according to forecasts, by the end of 2026 this amount will approach 10 billion UAH.
“Even in Kyiv, 9 out of 10 shopping centers sell banned e-cigarettes. Sellers often ignore age verification,” Prokhorovich noted.
The BEB noted that following the complete ban on the sale of vapes with flavors other than tobacco, which took effect in July 2024, demand did not disappear—it was simply captured by black and gray market players.
“The illegal tobacco market today is not only a matter of violating the law but also a significant loss of financial resources for the state. According to market participants’ estimates, the budget lost 26.5 billion UAH in 2025, and by 2026 these losses could rise to 28 billion UAH. This is a reserve that could be directed toward additional funding for the security and defense sectors and other critically important state needs,” noted Pavlo Buzdygan, Deputy Director of the BEB.
However, he noted that there are also positive trends: revenue from cash registers in March 2026 increased by 14.44%, indicating a gradual shift of the market out of the shadows and increased transparency in the circulation of excise goods.
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