Ukraine’s Tobacco Industry During Wartime: Between Budgetary Support, the Shadow Market, and Public Health Challenges
Time for Action analyzed the state of Ukraine’s tobacco industry amid war, tax changes, and the growth of the illegal segment. Despite the contraction of the domestic market and shifting consumption patterns, the sector remains one of the largest contributors to the state budget, a source of foreign currency revenues, and a provider of jobs. At the same time, it exposes several systemic state challenges from weak control over the shadow market to risks to adolescent health.
According to the Ukrtyutyun Association, in 2024 tobacco companies paid UAH 135 billion in taxes, accounting for about 6% of total budget revenues. The bulk of these payments comes from excise tax, which traditionally underpins the sector’s fiscal contribution. Association members include key market players Philip Morris Ukraine, JTI Ukraine, Imperial Tobacco, and British American Tobacco which continue to hold leading positions. Ukrtyutyun reports that in 2024 these companies paid more than UAH 128 billion in taxes and generated USD 148 million in foreign currency revenues from exports. The total volume of their investments in Ukraine’s economy is estimated at approximately USD 2 billion.
Importantly, the industry’s economic effect extends beyond budget payments. Estimates indicate that tobacco companies support around 100,000 jobs, including production, imports, logistics, and packaging. For a country at war, these figures translate into tangible employment and support for related sectors.
In 2025, several companies have already reported first-half results. JTI Ukraine transferred UAH 21.2 billion in taxes to the state budget, 75% more than in the same period of 2024. The company attributes the increase to a combination of factors, including higher excise tax rates, improved operational performance, and exchange rate changes. Alongside tax obligations, the business highlights its social role: since early 2022, over UAH 270 million has been directed to support employees and communities, with an additional USD 6.3 million raised through JT Group projects. In 2025, these initiatives focus on enhancing community inclusivity, the company says.
Philip Morris Ukraine paid UAH 28.9 billion in taxes in the first half of 2025, 17% or UAH 5 billion more than a year earlier. The core of this amount is excise tax UAH 22.9 billion, while UAH 5.4 billion comes from VAT. At the same time, the company emphasizes the problem of the shrinking share of legal business, citing research by Kantar Ukraine and linking it directly to negative impacts on public finances and the market overall.
The growth of the shadow segment has become the key risk. War, population migration, and unpredictable tax policy have reduced legal sales. Some consumers left the country, others switched to cheaper illegal cigarettes. According to Kantar Ukraine’s monitoring in April 2025, the share of illegal products reached 16.2%, up from 14.1% at the start of the year. Particularly alarming is the rise in counterfeit cigarettes from 6.4% in February to 8.8% in April 2025.
Analysts estimate that at this level of shadow trade, annual budget losses amount to UAH 25.2 billion, while the illegal cigarette market exceeds 5 billion units per year. A significant portion of this segment consists of products labeled Duty Free or for export, which are illegally sold domestically. The main sales channels remain kiosks and small shops, accounting for 67% of illegal cigarette sales. This points not only to demand issues but also to systemic weaknesses in enforcement.
A separate and increasingly acute dimension is adolescent smoking and the spread of electronic cigarettes. According to the NGO “Health and Behavioral Orientations of School-Age Youth” survey for 2022/2023, 17% of adolescents aged 11–17 have tried cigarettes, and 20% have tried electronic cigarettes. In the past 30 days, 10–12% reported smoking, while 4% smoke daily. Consumption rises sharply with age: among 11-year-olds, 3% smoke cigarettes and 21% use e-cigarettes; among 17-year-olds, the figures reach 22% and 30%, respectively.
The danger of electronic cigarettes extends beyond nicotine. Aerosols contain toxic substances that harm the cardiovascular system, brain development, and increase cancer risks. Additionally, used cartridges create environmental burdens, polluting ecosystems with plastic, metals, and chemicals.
Globally, many countries respond with stricter regulation. In Singapore, vapes have been banned since 2018, with violations punishable by fines of up to USD 2,000, mandatory rehabilitation, and criminal liability for sellers and importers. Ukraine is also moving toward tighter control. In early September, the President signed Law No. 4536-IX dated 16 July 2025, “On Integrated Prevention and Control of Industrial Pollution,” which, among other provisions, bans the sale of nicotine liquids as separate components or kits for self-mixing. Violations carry a fine equal to 200% of the goods’ value, but not less than UAH 24,000.
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It is worth emphasizing that flavored vapes have been formally banned in Ukraine since July 2024, yet the market continues to grow. According to Growford Institute estimates, the state budget loses up to UAH 5 billion annually due to illegal trade in e-cigarette liquids. Industry players openly acknowledge that without real enforcement and political will, these bans will remain declarative.
Profiles of major companies show that the tobacco sector is simultaneously one of the largest investors. Philip Morris Ukraine has invested over USD 750 million over 30 years; in 2024 it opened a new factory in the Lviv region with USD 30 million in investments, creating 250 jobs. JTI Ukraine has invested over USD 433 million in total, while Imperial Brands and British American Tobacco Ukraine remain major producers and taxpayers, contributing billions to the budget in 2024.
The extended conclusion by Time for Action is that Ukraine’s tobacco industry today represents a paradoxical pillar of the budget. It delivers substantial tax revenues, exports, and employment, yet suffers from market shadowing, uncontrolled illegal circulation, and health risks for youth. The sector’s future stability depends not on another excise hike, but on systemic state policy: effective enforcement, combating illegal trade, real implementation of bans, and clear rules of the game. Without this, the state risks losing tens of billions of hryvnias annually while paying a far higher price in the form of deteriorating health among future generations.
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