Main points
- Law enforcement officers conducted a large-scale special operation, seizing a large number of illegal components for vaping and equipment, which could have caused the budget losses of over 100 million hryvnias in excise taxes.
- The investigation revealed that an organized group was producing counterfeit products in Kyiv and the region, disguising nicotine-containing liquids as other components, in order to avoid taxes.
Vaping “Klondike” uncovered in Ukraine / National Police
Law enforcement officers have conducted one of the largest special operations against the illegal vaping market in Ukraine. Detectives and investigators simultaneously conducted almost 300 searches in different regions of the country due to schemes involving counterfeit e-cigarettes and non-payment of excise taxes.
What is known about the exposure of the shadow market for “electronics”?
According to the investigation, the budget could have lost more than 100 million hryvnias in excise taxes due to schemes with counterfeit products, the National Police reported.
According to the investigation, the organized group created a large-scale production of counterfeit products in Kyiv and the region. For this purpose, they used special equipment, chemical components, flavorings, and an established logistics system.
Formally, the company had a license only to produce liquids for electronic cigarettes and declared the sale of so-called “strength enhancers.” In reality, according to law enforcement, under this scheme they produced full-fledged nicotine-containing liquids for vaping with various flavors.
This allowed to minimize the tax burden and circumvent the requirements for the sale of excisable products. During the large-scale operation, law enforcement officers seized:
- almost 970 thousand units of flavorings, nicotine and other components;
- over 6 thousand sets of liquids for electronic cigarettes;
- more than a thousand disposable vapes;
- about 1,900 units of hookah tobacco without excise stamps;
- 1,590 liters of nicotine-containing liquids;
- over 343 thousand packaging and printing;
- almost 2 million hryvnias in cash;
- equipment for mass production of products.
So far, 8 suspects have been announced. The investigation is ongoing under articles on illegal circulation of excisable goods, use of counterfeit excise stamps, and money laundering.
Prosecutor General Ruslan Kravchenko reported that prosecutors and law enforcement officers have worked through all key stages: from illegal production, packaging and storage, to logistics, sales through stores, financial transactions and sales channels across Ukraine.
Participants sold nicotine-containing products to buyers, bypassing legal restrictions. Ready-made vaping liquids were disguised as separate components: glycerin, propylene glycol, flavorings and nicotine. In some cases, the nicotine-containing mixture was given to buyers as a “gift”. No state control or payment of excise tax,
– said Kravchenko.
According to him, the largest part of the group operated in Kyiv and Kyiv region, followed by Vinnytsia region and Odesa.
What does this mean?
The vape market in Ukraine has long become one of the most profitable segments of the shadow economy. Due to high demand and weak control, some manufacturers have been operating virtually “in the shadows” for years.
The problem became particularly acute after the sharp increase in the popularity of disposable e-cigarettes among teenagers and young people. Schemes with “pseudo-products” such as “strength enhancers” allowed manufacturers to:
- Lower excise taxes;
- Avoid stricter regulation;
- Sell products without proper control.
For the state, this means hundreds of millions of hryvnias in uncollected taxes, and for consumers, the risk of buying mixtures of unknown origin.
How much money does Ukraine lose due to schemes related to illegal tobacco trafficking?
A study by marketing data and analytics company Kantar Ukraine, published in October last year, showed that 17.8% of the regular cigarette market in Ukraine is still in the shadows. The shadow market itself amounts to 5 billion cigarettes.
Expert Zoryana Stetsyuk, in a commentary for Channel 24 , stated that the state loses up to 30 billion hryvnias every year due to the illegal tobacco market alone. The budget is short by another billion hryvnias due to illegal alcohol.
Zoryana Stetsyuk,
Deputy Minister of Digital Transformation
These are large amounts of money that should be used for the state, not for the illegal sector.
How should eExcise change the situation?
The full launch of the eExcise system is scheduled for November 1 this year. At the same time, the launch will take place in stages: currently the system is being tested together with businesses, an additional test environment is planned for August, and user registration will open in the fall.
The government expects that e-Excise will help reduce budget losses and make the market more transparent.
We can already see the scale of the problem – over 30 billion hryvnia in losses. Accordingly, the economic effect of e-Excise will be measured by what part of these losses the state will be able to recover thanks to more transparent circulation,
– adds Stetsyuk.
In addition to combating the shadow market, the launch of eExcise is also considered as part of Ukraine's European integration reforms. Each pack of cigarettes or bottle of alcohol will have a unique DataMatrix code, which will allow the movement of goods to be tracked.
According to the government's plan, the system should not only complicate the work of the illegal market, but also simplify the life of legal businesses. This includes reducing paper bureaucracy, automating processes, and providing additional protection for brands from counterfeiting:
- One of the main changes will be the ability for ordinary buyers to independently check the legality of the product through the Diya application.
- To do this, simply scan the code on the packaging.
If there is no information or the data does not match, it will be possible to report this. That is, for the first time, the consumer receives a real control tool simply in his smartphone,
– the official concludes.
Other illegal businesses exposed by BEB
-
Law enforcement officers have uncovered a scheme to smuggle alcohol into Ukraine under diplomatic cover worth over 4 million hryvnias. Six suspects were charged, and the court set bail at almost 1 million hryvnias each.
-
BEB detectives dismantled the underground production of counterfeit coffee, conducting 22 searches and seizing property worth about 20 million hryvnias. Counterfeit coffee was produced and sold through online stores, messengers, and coffee shops, using fictitious business activities.