Main points
- The Bureau of Economic Security conducted over 70 searches, seizing products and equipment worth 30 million hryvnias related to the shadow vaping business.
- The participants in the scheme avoided paying taxes by splitting the business into various individual entrepreneurs and companies, and laundered money through financial transactions.
/ Collage by Channel 24, photo Shutterstock, BEB
Detectives from the Bureau of Economic Security conducted a large-scale operation against the shadow market for vaping products. As part of the case, they exposed a group of individuals who organized the illegal production and sale of e-cigarette liquids.
What is known about the exposure of the chain of vape shops?
In total, law enforcement officers conducted more than 70 searches and seized products and equipment worth approximately 30 million hryvnias, BEB reported.
According to the investigation, the scheme has been operating since at least 2023 in Kyiv and the region:
- The sale was organized through a wide network of vape shops, where so-called “home-made” liquids were sold – liquids manufactured without any state control.
- In parallel, the goods were actively sold via the Internet with delivery throughout Ukraine.
Separately, law enforcement officers established that the participants in the scheme were able to avoid paying taxes in large amounts. To do this, the business was artificially divided: it was formally registered as different individual entrepreneurs and companies , although in fact it was a single network. The money received was “laundered” – spent through financial transactions, transferred between accounts and presented as legal income. Part of the funds was used to purchase property.
During the searches, investigators checked retail outlets, warehouses, production facilities, and the residences of the individuals involved. As a result, they documented the full cycle of illegal production and distribution.
- The total value of the seized items is estimated at approximately 30 million hryvnias.
- According to estimates, if the products had hit the market, the state could have lost about 20 million hryvnias in excise tax .
In addition, as part of the operation, illegal MAFs through which these products were sold were dismantled.
How does the “business fragmentation” scheme work?
Business fragmentation schemes allow entrepreneurs not to show the entire turnover. Economist Oleg Getman and tax consultant Mykhailo Smokovich told this in comments to Channel 24 .
Large business fragmentation schemes are particularly common in retail and food service. They become noticeable when a supermarket or restaurant issues multiple payment receipts.
Oleg Getman
Economist, coordinator of expert groups of the Economic Expert Platform
All these splitting schemes in restaurant and retail chains are built on the fact that they are not just split into individual entrepreneurs, but also individual entrepreneurs do not issue the vast majority of fiscal checks. That is, they do not show their turnover and thanks to this they can continue to exist as individual entrepreneurs. If you force them to show all their turnover, then the splitting scheme becomes almost uninteresting. Because the limits will end in a month or a few weeks. Too many of them will have to be changed, so it will be more profitable to switch to a common system.
To combat the business fragmentation scheme, the Ukrainian tax service needs a reboot. To do this, they need to pass bill No. 9243, but its consideration is being postponed. Tax consultant Mykhailo Smokovich also believes that the tax service currently does not have enough resources to expose the schemes , so it should be given more opportunities.
Mykhailo Smokovich
Accountant, tax consultant
The tax office should detect such cases, but its tools are limited. If detected, it can interpret this as a fragmentation of the business and try to collect all these individual entrepreneurs together in the acts. And all the turnover that went through this store should be taxed not under the simplified system, as the company did, but under the general system. But here it is very difficult for the tax office to collect everything together, detect and hold the company itself accountable.
Other illegal businesses exposed by BEB
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In the Odessa region, an entrepreneur used a “business fragmentation” scheme, dividing it into dozens of individual entrepreneurs to evade taxes. During the searches, documents, cash, seals, and flowers totaling over 10.5 million hryvnias were seized, and the entrepreneur was declared suspicious.
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A “business fragmentation” scheme was exposed in western Ukraine, which allowed a supermarket chain to avoid paying taxes in the amount of over 23.7 million hryvnias.
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The Bureau of Economic Security of Ukraine has exposed the largest illegal tobacco factory, which brought in over a billion hryvnias every month. During the searches, equipment, 750,000 packs of cigarettes, and materials worth a total of over 200 million hryvnias were seized.