Ukraine's Illegal e-cigarette Market Causes $100 million Annual Budget Loss

Key point:

Financial Loss: The illegal e-cigarette market in Ukraine leads to an annual loss of approximately 5 billion hryvnias (about 100 million US dollars) in the national budget.

Main mode: Ingredients (propylene glycol, glycerin, etc.) for "DIY" (самозамес) are sold separately, and nicotine is provided as a "gift", allowing consumers to mix their own e-liquid.

Teenage Use: A study shows that 1 in 5 Ukrainian teenagers use e-cigarettes, mainly obtained through the black market.

Tax revenue data: There will be no purchase tax on e-cigarette products in 2025; in 2023, nearly 7 million were purchased, indicating that the market will be almost entirely comprised of untaxed black market products in 2025.

Sales channels: Illegal e-cigarettes are not only sold online, but also openly sold in upscale shopping centers (such as Tobacco and Vape in Kiev), and even street vendors selling them at subway entrances and bus stops.

According to a report by dsnews on August 11th, the illegal e-cigarette market causes Ukraine to lose approximately 5 billion hryvnias (around 1 billion US dollars) from the national budget each year. Some of the losses come from the "self-mixing" (самозамес) sales model, where e-cigarette ingredients are sold separately. Research data shows that one in every five Ukrainian teenagers uses e-cigarettes, and these products often enter their hands through the black market.

Danilo Hetmantsev, Chairman of the Finance, Taxation and Customs Policy Committee of the Verkhovna Rada of Ukraine, stated in his video blog "Deconstruct" that by 2025, there will be no consumer tax stamps on e-cigarettes that were not purchased, compared to nearly 7 million in 2023. These products are not only sold online, but also openly marketed and sold in upscale retail and entertainment centers.

In Ukraine, legally sold e-cigarette products must be affixed with excise stamps issued by the government. Manufacturers or importers must purchase these stamps from the government before production or importation, and then affix them to each retail package. This means that by 2025, almost all e-cigarettes circulating in the Ukrainian market are untaxed and unregistered black market products.

These sellers could be street vendors near subway exits or bus stations, or they could be large stores located in top shopping centers in Kyiv, such as Tobacco and Vape. And, these are not isolated cases," the legislator pointed out.

Danilo Hetmantsev also explained the mechanism of so-called "self-mixing": consumers purchase ingredients such as propylene glycol, glycerin, and other e-liquid separately, and then receive nicotine as a "gift.

Nicotine is not purchased directly, but rather 'given' as a 'gift.' After mixing all the ingredients together, the finished product is obtained. This model allows illicit merchants to evade up to 5 billion grivnas in taxes each year," he said.

He called on law enforcement agencies, including the Economic Security Bureau (BEB), to strengthen efforts to crack down on underground sellers, shut down illegal production and sales channels, and pursue genuine legal judgments against offenders.