Ukraine's leading English-language newspaper since 1995

A lady sells cigarettes in downtown Kyiv on August 1. Cigarette prices are expected to go up in price by up to 20 cents per pack if President Victor Yushchenko signs a new excise tax law adopted by parliament last week. KP Media, photo by Iaroslav Debelyi In need of cash because of the stalled privatization of state assets and unexpected costs from last month’s flooding in western Ukraine, lawmakers unexpectedly doubled excise taxes on cigarettes

axes on cigarettes last week.

The increase, which came as parliament met in a special session on July 31 to approve $1.2 billion for flood relief, is more symbolic than substantive, experts said. Even with the modest hike, Ukraine will remain home to some of the world’s cheapest cigarettes and, consequently, one of the highest smoking rates, experts added.

If approved, cigarette prices are expected to increase by only an estimated 15-20 cents per pack in a nation where popular brands still sell for $1 or less.

Anti-smoking activists say lawmakers will need to dramatically hike cigarette taxes, bringing them closer to Western European levels, to effectively combat an addiction that afflicts 40 percent of the nation’s adults and that prematurely kills nearly 100,000 Ukrainians each year.

Moreover, it is not clear if Ukraine’s President, Victor Yushchenko, will sign even the modest increase into law. The issue of cigarettes and how they are taxed is emerging as the latest political flashpoint between Yushchenko and Prime Minister Yulia Tymoshenko.

Tymoshenko, driven in part by budget needs, is seeking to significantly boost excise taxes on cigarettes and alcohol when parliament returns to work this fall.

“Excise duties on tobacco are still the lowest. We’ll have to raise them once more,” she said.

But the presidential office last month came out in opposition, echoing tobacco­industry arguments that higher excise taxes will promote smuggling and black market activity.

The tax hike approved July 31 by parliamentarians is expected to generate an additional $200 million in Ukraine’s $45 billion budget. It won by a veto­proof majority of 381 out of 450 lawmakers. If it becomes law, the excise tax for filter­tipped smokes would rise from $3 to $6 per 1,000 cigarettes, and from $1 to $2.5 per 1,000 non­filter cigarettes.

Oleksandr Zholud, an economist at a Kyiv­based think tank, the International Centre for Policy Studies (ICPS), said that raising cigarette taxes is justified to reduce smoking and fill budget holes. “Given that the privatization plan has stalled, and foreign and internal loans are not coming in, the government is looking for alternative ways to finance the budget deficit,” Zholud said.

Dmytro Redko, director for corporate issues at JT International in Ukraine (JTI), part of Japan Tobacco Inc., said prices per pack could rise 15­20 cents. “Reducing the number of smokers with a price rise is nonsense. [Smokers] will switch to cheaper brands,” he added.

Such arguments are contradicted by the tobacco industry’s own internal documents, unearthed in lawsuits filed in the U.S. during the last decade showing that tax increases are effective at cutting smoking. Increasing prices is the single most effective way to reduce smoking, according to the World Health Organization (WHO).

Konstantyn Krasovsky, WHO national tobacco control officer in Ukraine, said much higher taxes are needed to move Ukraine’s smoking rate in the direction of Switzerland, where 20 percent of adults smoke, and Canada, where the figure is 15 percent.

“In reality, many smokers want to quit. Therefore, the rise in cigarette prices can become a good incentive for them to make that decision,” Krasovsky said.