Ukraine is struggling to relaunch its economy after months of decline due to the pandemic. According to a recent analysis by Reuters, the Ukrainian economy will recover to 10% growth in Q2 of 2021 after 5% economic decline in 2020. But now the Verkhovna Rada (the unicameral parliament) is trying to extract cash from the people by raising taxes contrary to the health of its own citizens.
In fact, according to the No 466 Law about amendments of the Tax Code of Ukraine, the excise tax rate on electrically heated tobacco products (EHTP) was increased by 320% effective 1st January 2021. However, a recent amendment would replace that with an excise tax rate of 200% in 2021, and gradual increases of 30% annually during 2022-2025 on EHTP.
Many lawmakers claim that if tobacco is heavily taxed then other nicotine-delivering items should be taxed likewise. Public health considerations about the taxation of e-cigarettes as well as EHTP are not in the first line. The focus is set on the tax revenues only, even with the significant benefits of vaping products as well as EHTP as a harm reduction tool. For example, electronic cigarettes are 95% less harmful (Public Health England, 2018) than combustible tobacco. The 2021 report of Public Health England compared to the 2018 review gave stronger evidence that nicotine vaping products are effective for smoking cessation and reduction. According to the latest Global State of Tobacco Harm reduction (GSTHR) report (GSTHR, Burning Issues 2020) almost 100 million people are now using a range of vaping products and they do not use at all combustible cigarettes. The convincing evidence provided by this report shows that e-cigarettes are effective means of quitting and have substantially lower exposure to harmful products of combustion seen in cigarettes.
United Kingdom, New Zealand, and Canadian governments support smokers to switch from traditional cigarettes to proven less harmful alternatives such as e-cigarettes. In the UK, vaping policies are not grouped with smoking policies. Tobacco control plans and not over-taxing policies should be utilized by other governments around the world to develop evidence-based regulations.
Taxes play a significant role in consumer behavior. Α higher price is a trade barrier for a harm reduction tool. Consumers will not consider switching to vaping products or to EHTP and might continue using cigarettes combustible tobacco. Around the world, e-cigarettes or EHTP have become extremely popular, increasing from about seven million users in 2011 to 41 million in 2018 and that number is expected to reach 55 million by 2021 (Euromonitor International). If smokers can find satisfactory alternatives to cigarettes that do not involve combustion but do provide nicotine, then they would avoid almost all the disease risk.
Higher taxes and prices for licit cigarettes or EHTP are positively associated with an increasing number of smokers switching to cheap, illegal tobacco products. In past years Ukraine has turned into the world’s hub’ for smuggling cigarettes to Europe. In 2020, the illegal cigarette market was 9%, including smuggling, counterfeiting and cigarettes with counterfeit excise stamps.
For 2016 the share of illegal cigarettes was 1%, showing that the specific excise tax on tobacco products by 29.7% from January 1, 2018, increased the percentage of illicit trade in the country.
Smokers find a steady source of nicotine at a much lower price, representing a loss of revenue to the government, while also acting as a major source of revenue for the black market. Costs of illicit trade go beyond financial measures, with consequences such as encouraging youth uptake smoking and increasing health threats for consumers from unsanitary ingredients used.
The data showed that over-taxation on tobacco for heating illicit trade will flourish resulting in direct budget losses from unpaid taxes. According to the national statistics report in 2018, the population of Ukraine had 5.96 million smokers. The Tobacco Control Policies should not strictly regulate the most innovative solutions for tobacco harm reduction products such as EHTP and e-cigarettes. Innovation makes the products differentiated relative to what customer needs. Overtaxing restricts public health opportunities. During the ongoing pandemic crisis, every single person understood how significant innovation is for tackling worldwide health issues. It is an important tool for developing an effective global strategy and showing progress in tobacco control.
The Government of Ukraine should maximize the population benefit from vaping or heated tobacco products and diminish the population harm from tobacco. Obstructing smokers to switch from smoking by making tobacco alternatives less appealing and more difficult to access is not an effective regulation. The framework for consumer nicotine products should be developed without damaging the market-driven innovation. Harm reduction and tobacco control should be on the same page.