Initiatives of individual MPs to amend or edit bill No. 11090 On amendments to the Tax Code of Ukraine on the revision of excise tax rates on tobacco products adopted at first reading, carry significant risks for the state budget, since they can provoke galloping growth of the illegal market cigarettes in Ukraine, the Union of Ukrainian Entrepreneurs (SUP) and the U.S.-Ukraine Business Council (USUBC) said.

"The SUP takes the initiative to support the government version of bill No. 11090, adopted at first reading," the association said on its website.

"USUBC supports the government version of bill No. 11090 adopted at reading," the American-Ukrainian Business Council said.

The only proposal for improvement by the SUP and USUBC is, within the framework of the EU approach, to fix the euro-hryvnia exchange rate for the next year as of October 1 of the previous year, so that enterprises can better plan their activities.

Among the most critical and risky amendments made by deputies to the second reading of the bill, business representatives, in particular, highlighted the increase in the ad valorem excise tax rate on cigarettes from 12% to 25% and its introduction for tobacco-containing products for electric heating (TVEN), since this, according to them opinion, will reduce the predictability of budget revenues, increase the illegal market and, in general, negatively affect the entire legal tobacco market.

Other proposals that the SUP and USUBC are asking to reject include the equalization of excise tax rates for TVEN and cigarettes, as this is not in line with the practice of EU member states, and the introduction of a 15% trade margin for retailers on all tobacco products and liquids, used in electronic cigarettes. Regarding the latter, it is indicated that such state regulation was already vetoed by the president in 2020 on the grounds that such an approach limits the rights of manufacturers and importers to set a free price.

Business representatives also remind that the bill was adopted by the Verkhovna Rada as a basis on June 4 this year and is currently under consideration by the parliamentary committee on finance, tax and customs policy, which, under the leadership of Danylo Hetmantsev, supports the struggle of legal businesses to reduce the share of the illegal market.

Bill No. 11090 involves converting of excise tax rates on tobacco products from UAH to EUR, reaching the EU minimum excise tax rates on cigarettes (EUR 90 per 1,000 cigarettes) by gradually increasing specific excise tax rates until 2028, returning to the differentiation of the excise tax on TVEN and cigarettes and the introduction of a special mechanism for calculating the excise tax on tobacco products taking into account the exchange rate.

According to the Finance Ministry's estimates, described in the draft Budget Declaration, this will increase state budget revenues in 2025 by UAH 600 million, in 2026 by UAH 5 billion, in 2027 by UAH 9.4 billion and in 2028 by UAH 13.9 billion.