Ukraine Tobacco Market Analysis Provides Evidence to Support Tax Rate Uniformity
Study suggests that public health suffers when cigarette and heated tobacco product tax rates are not aligned.
Researchers concluded that taxing HTPs and cigarettes at the same, sufficiently high rate can combat industry pricing tactics while aligning with public health and fiscal goals.
Raising tobacco taxes has long been established as an effective way to reduce tobacco use while also producing government revenue.
Some countries, including Ukraine, apply tobacco tax rates dissimilarly based on the individual characteristics of different products. But from January 2021 to 2024, the tax rates in Ukraine were uniform—or “harmonized”—for its entire class of tobacco products after a large tax increase on heated tobacco products (HTPs) and e-cigarettes was implemented.
Published online on May 14, 2025, in the journal Tobacco Control, an analysis of the country’s tobacco market before and after tax harmonization was initiated suggests that harmonized tax policies can reduce market segmentation and mitigate tobacco industry pricing strategies, while also helping to discourage tobacco consumption and generate additional government revenue.
This policy change turned industry profit into government revenue.
— Kevin Welding, PhD, associate director of the Institute for Global Tobacco Control
The study was conducted by Zaineb Sheikh, PhD, of the University of Bath’s Tobacco Control Research Group, Rob Branston, PhD, of the University of Bath School of Management, Lilia Olefir of the Smoke Free Partnership (previously of the “Life” Advocacy Center in Ukraine), and Kevin Welding, PhD, of the Institute for Global Tobacco Control (IGTC) at the Johns Hopkins Bloomberg School of Public Health.
For their analysis, the researchers examined official Ukrainian tax data in tandem with NielsenIQ monthly price and sales data for cigarettes, HTPs, and e-cigarettes between March 2019 and February 2022—when HTP sales rose 278% as cigarette sales declined—during this period of tax reforms and the onset of COVID-19 (ending just before Russia’s full-scale invasion of Ukraine, in February 2022)
Demand for HTPs in recent years (including during the study period) has risen amidst industry marketing, often tailored to younger consumers, emphasizing technological features and “reduced risk” claims. Unlike combustible cigarettes (where tobacco is burnt) and e-cigarettes (which contain nicotine but not tobacco), HTPs are marketed as devices that heat tobacco to produce an inhalable aerosol. But this study suggests that governments which attempt to steer consumers to HTPs by imposing lower taxes on them than cigarettes and other tobacco products may ultimately be doing more harm than good.
“Even before tax harmonization took effect, the tobacco industry overshifted tax increases across its portfolio of products, with the exception of its economy-line cigarettes” explained Welding, an associate scientist and associate director at IGTC. “They priced HTPs and other products higher than the assigned tax rates necessitated, while undershifting taxes on economy cigarettes, maintaining their affordability to consumers in the process.”
While pricing strategies such as overshifting and undershifting can enable the tobacco industry to circumvent the potential impacts of tax increases on consumer demand, researchers argue that Ukraine’s lower HTP tax rate prior to harmonization also caused the government to miss out on a crucial tax revenue opportunity—hampering both the public health and economic objectives of the country’s tobacco tax policies.
Harmonized tax policies can reduce market segmentation and mitigate tobacco industry pricing strategies, while also helping to discourage tobacco consumption and generate additional government revenue.
When Ukraine harmonized HTP taxes with cigarettes, researchers observed evidence of a strategy known as “price-smoothing,” wherein the tobacco industry absorbed the initial HTP tax increase—rolling it out to consumers gradually over an extended period, instead. In this case, however, while the price-smoothing enabled the tobacco industry to prevent shocks in demand (a common effect of abrupt prices increases), a positive outcome was the generation of additional government revenue through the large HTP tax increase.
“This policy change turned industry profit into government revenue,” Welding concluded.
While indicating that misleading, health-related HTP marketing claims do not justify lower HTP tax rates, the study also reinforces that raising tobacco taxes significantly and harmoniously—inclusive of all product types—is an effective way for governments to achieve parallel goals of increased tax earnings and improved public health.
This work was supported with funding from Bloomberg Philanthropies’ Bloomberg Initiative to Reduce Tobacco Use (bloomberg.org).