Main points
- The legal cigarette market in Ukraine is shrinking by 10-15% annually due to the growth of the illegal market, driven by a significant price difference between legal and illegal products.
- In 2025, 304 criminal proceedings were initiated on the facts of illegal trafficking of tobacco products, with the seizure of goods worth 2.234 billion hryvnias, which is 60% more than in 2024.
The legal cigarette market in Ukraine is rapidly shrinking / Pixabay
The legal cigarette market in Ukraine has been shrinking by 10-15% annually for the past two years, which is too high a rate. All because the illegal tobacco market is gaining momentum.
How and why do Ukrainians choose illegal cigarettes over legal ones?
This situation is observed for the first time on the Ukrainian tobacco market, Interfax-Ukraine writes.
What has been happening in the last two years? Because the illegal market is growing, the rate of decline in the legal market is simply incredible: it has never happened in Ukraine that the legal cigarette market has shrunk by 10-15% per year,
– says Maxim Barabash, CEO of Philip Morris Ukraine.
According to him, consumers are choosing the illegal market because the difference in price between legal and illegal products has increased significantly due to the increase in excise taxes.
70% of cigarettes are in the low-price segment. These are people who come to the point of sale and ask: give me the cheapest cigarettes. Today they get illegal cigarettes for 70-78 hryvnias (per pack), when by law cigarettes cannot cost less than 125 hryvnias today,
– said Barabash.
Thus, from January 1, 2026, due to another indexation of excise taxes , the price of legal cigarettes increased by 15-17% .
Countering the shadow cigarette market
The tobacco market remains one of the most shadowy, which means billions in budget losses, uncontrolled circulation of excisable products, and unequal conditions for legal business, writes BEB.
Thus, in 2025, 304 criminal proceedings were filed with the ERDR on the facts of illegal trafficking of tobacco products, of which 170 were sent to court. The total estimated value of the seized goods is 2.234 billion hryvnias , which is almost 60% more than in 2024 (1.4 billion hryvnias).
During the year, 28 industrial production lines were shut down and the following were removed:
- Cigarettes: 2,074,533 packs;
- Tobacco: 351,072 kilograms;
- Excise tax stamps: 9,590,580 pieces;
- Paper sleeves: 2,540,000 pieces;
- Packaging: 4,542,939 pieces;
- Filter sticks: 497,623 boxes.
What is known about the shadow schemes of Ukrainian business?
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The Bureau of Economic Security claims that over 50,000 individual entrepreneurs are involved in shadow schemes as of May 2025, costing the budget 70 billion hryvnias annually. The schemes include involving students who, in return for a reward, transfer electronic signatures and open bank accounts to evade taxes.
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The shadow economy in Ukraine causes budget losses of up to 1 trillion hryvnia, mostly due to salaries in envelopes, smuggling and excise trade. Salaries in envelopes cause budget losses of 140-280 billion hryvnia, and “gray imports” and smuggling – 120-185 billion hryvnia.
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The number of sole proprietorships in Ukraine increased significantly in late 2025, particularly in retail, IT, and other services. This growth has been attributed to tax evasion schemes through “business fragmentation,” which allows for the avoidance of full tax payments.