"The lobbying strategy is to keep excise as low as possible" - tobacco industry excise taxation policy in Ukraine

Abstract

Background: Tobacco taxes are one of the most effective ways to reduce tobacco use. Transnational tobacco companies (TTCs) claim they wish to develop and secure excise systems that benefit both governments and the profitability of the companies themselves. The objective of the paper is to use the case of Ukraine, with its inconsistent history of excise tax changes in 1992-2008, to explore tobacco industry taxation strategies and tactics, and their implications for governmental revenues.

Methods: Details of tobacco industry policy on tobacco taxation in Ukraine were obtained by searching tobacco industry internal documents and various published reports.

Results: Even before entering the market in Ukraine, TTCs had made efforts to change the excise system in the country. In 1993-1994, TTCs lobbied the Ukrainian Government, and succeeded in achieving a lowering in tobacco tax. This, however, did not produce revenue increase they promised the Government. In 1996-1998, Ukrainian authorities increased excise several times, ignoring the wishes of TTCs, caused significant growth in revenue. Due to TTCs lobbying activities in 1999-2007 the tax increases were very moderate and it resulted in increased tobacco consumption in Ukraine. In 2008, despite the TTCs position, excise rates were increased twice and it was very beneficial for revenues.

Conclusions: The Framework Convention on Tobacco Control includes provisions both on tobacco taxation policy and on protection of public health policy from vested interests of tobacco industry. This paper provides arguments why tobacco taxation policy should also be protected from vested interests of tobacco industry. TTCs taxation strategy appears to be consistent: keep excise as low as possible. Apparent conflicts between TTCs concerning tax structures often hide their real aim to change tax structures for competing interests without increasing total tax incidence. Governments, that aim to reduce levels of tobacco use, should not allow tobacco companies to influence the development and implementation of tobacco taxation policy.

Figure 1

Cigarette production and revenues in Ukraine in 1992-2000. Production (bln. cigarettes). Inflation-adjusted tobacco excise revenues (mln.UAH) 1995 is a basic year.

Figure 2

Cigarette production and revenues in Ukraine in 2001-2008. Production (bln. cigarettes). Inflation-adjusted tobacco excise revenues (mln.UAH) 2001 is a basic year.