It is noted that the gray tobacco market in Ukraine has been constantly growing since 2018, but after the start of a full-scale war it began to expand even more rapidly.
“Everyone knows where illegal cigarettes are produced. Someone admits this, our information shows that this activity is under a protective umbrella,” a source from the tobacco industry told reporters.
According to Kantar Ukraine, in June last year the share of illegal tobacco products in Ukraine was 19.5% of the market, and at the end of the year it had already reached 25.7%. That is, every fourth cigarette in Ukraine comes from illegal sources.
The publication notes that there are approximately two reasons for the sharp increase in illegal cigarette production in Ukraine:
“The first is that law enforcement agencies are absolutely ineffective or do not want to be effective.
The second reason is the rapidly growing excise tax. Taxes account for 70-80% of the retail price of a pack of cigarettes. Illegal producers, of course, don’t pay them, which makes their business profitable.”
In the period from 2018 to 2025, the excise tax in Ukraine should increase by 20% annually to get closer to the EU level. However, with each increase, the gray share of cigarettes increases, and legal sales decrease. If in 2018 59 billion pieces of legal cigarettes were smoked in Ukraine, in 2019 there were already 52.69 billion pieces, in 2020 - 47.53 billion pieces; in 2021 - 44.21 billion pieces, then in 2022 - only 36.9 billion pieces.
Who is behind this and how illegal cigarettes get onto the market
Illegal cigarettes are sold on Telegram channels. You can buy a block, or more. Wholesale prices apply from 500 pieces. The offer is wide, even loose cigarettes are available, without packaging, and if desired, you can purchase tobacco, filters, and tobacco paper.
Illegal cigarettes are divided into two groups.
The first category includes obvious counterfeits, mainly brands of international tobacco companies that do not have excise stamps at all.
The second includes products formally intended for sale in a duty-free zone (labeled as Duty Free) or for export. Such goods, theoretically, cannot be sold in regular stores, but thanks to the “Duty Free” sticker, the consumer does not have to wonder why there is no excise stamp on the packaging.
According to the Kantar report mentioned above, most illegal cigarettes are distributed in large Ukrainian cities: Dnieper, Odessa, Lviv, Kharkov, etc., and the most popular brand is Compliment cigarettes.
Referring to the material from Economic Pravda for 2023, Gazeta Wyborcza notes that in 2022, 64% of the production of “gray cigarettes” in Ukraine was accounted for by Vinnikovskaya Tobacco Factory LLC.
“According to YouControl, this company belongs to an influential Lviv businessman, ex-deputy of the Lviv Regional Council, honorary president of FC Rukh Grigory Kozlovsky,” the Polish publication points out.
“Another large producer of illegal tobacco is the United Tobacco company, associated with former Popular Front deputy Nikolai Martynenko.
The closure of the factory in Zheltye Vody was perhaps the biggest victory in the fight against the gray zone that MPs boasted about. At the same time, according to ED interlocutors who are involved in the tobacco market, the factory has come to life again in the Ternopil region,” adds Wyborcza and notes that “such miracles happen here often.”
Journalists point out that Ukrainian law enforcement agencies receive entire lists of points of sale of illegal cigarettes and data on illegal factories, but then nothing happens.
“Excise-free cigarettes are confiscated, then given to soldiers, and then they end up back on the black market. Products with counterfeit excise tax stamps have recently had information on the packaging that they were produced by the Ukrainian companies Tobacco Production and United Tobacco. Illegal cigarettes, allegedly intended for export, or Duty Free, are marked with the markings of the Tobacco Factory in Vinnitsa,” the publication writes.
How much does the Ukrainian budget lose on excise-free tobacco?
Gazeta Wyborcza notes that there are different data on the losses of the Ukrainian budget from the illegal trade in tobacco products. In particular, when discussing the issue in the Verkhovna Rada, the amount of $1 billion appeared.
But according to the tobacco industry, due to the loss of excise duty from “gray cigarettes”, the Ukrainian budget annually loses more than 2.5 billion zlotys (24 billion hryvnia).
“For this amount, you can purchase 29 HIMARS launchers with equipment (the cost of one set is approximately 20.7 million US dollars),” the publication argues.
In February, G7 countries called on Ukrainian authorities to strengthen their stance against the illegal trade in tobacco products. They fear an increase in the export of counterfeit cigarettes from Ukraine to Europe. However, Vladimir Zelensky and the Ukrainian government insist that the days of the tobacco mafia are ending, as Ukraine has passed a law banning the sale of cigarettes in duty-free shops.
How is it in Europe?
Gazeta Wyborcza notes that the largest supplier of illegal cigarettes in Europe is France, where “gray goods” account for more than 32%. Poland, despite the fact that it was previously an active supplier of illegal tobacco both for its own and for the European market, is currently “holding up very well.”
“The business was very profitable, because the income from the illegal production of cigarettes is almost the same as from the drug trade. The profitability is so high that you can become a millionaire in just a month,” the publication writes.
In 2015, the share of gray tobacco in Poland was 16.8% of the market, but Polish services have learned to close such factories en masse. Between 2018 and 2022, 299 illegal tobacco factories were identified throughout the European Union. Of these, 46%, or 137 enterprises, were in Poland. Now, according to a report by the analytical company KPMG, the share of illegal cigarettes in Poland is a record low and amounts to 4.2%. On average, only every 25 cigarettes smoked in Poland comes from illegal sources.
