Results of tobacco taxation policy in Ukraine in 2016-2018

Abstract

Introduction Specific excise rates for tobacco products increased in Ukraine by 40% in 2016, 40% in 2017 and 29.8% in 2018. The aim of the research is to estimate the impact of these increases on tobacco prices, consumption, and revenue. Methods Monthly data published by Ukrainian official bodies were analyzed. Results In 2016, the average price increased by 7% while inflation was 14%. In 2017 and 2018, the average price increased by 35% and 28% with inflation of 14% and 10%. Cigarette sales increased from 73 billion sticks in 2015 to 76 billion in 2016 but then decreased to 67 billion in 2017 and 55 billion cigarettes in 2018. Tobacco excise revenue increased in 2016 by 59%: from 22 billion to 33 billion UAH, while in 2017, it increased to 40 billion UAH (by 20%) and in 2018 – to 43 billion UAH (by 8%). In 2018, the revenue was 15 billion and 28 billion UAH in January-June and July-December respectively. Conclusions In three years excise increased by 154% and it caused an increase in price by 84%, reduction in sales by 25% and an increase in revenue by 94%. So, in long term, tobacco excise increase did have the expected impact. However, in short term, the impact can vary as the tobacco industry uses sophisticated tactics to distort the results of tobacco taxation: price wars and price over-shifting, forestalling and others. Such tactics should be taken into account when forecasting the possible impacts of proposed tax increases.