Ukrainian President Volodymyr Zelensky has vetoed a bill aimed at increasing the price of cigarettes, parliament stated on its site on Feb. 19.
The vetoed legislation mandated a single account for paying taxes and fees on cigarettes and would have required tobacco companies to make a compulsory contribution to state social insurance.
It would also have established a trade margin for cigarettes, 7% for wholesale and 13% for the maximum retail price, and pushed producers to raise prices by 20%. That would have led to a decrease in sales volumes, British American Tobacco (BAT) alleged in October 2019.
That led tobacco manufacturers to strongly oppose the legislation. Some even halted production at their factories in Ukraine, claiming the law would make their industry unprofitable.
But anti-smoking activists believe that Big Tobacco simply wanted to pressure the Ukrainian president to veto the bill.
Member companies of the Ukrainian Association of Tobacco Manufacturers, a lobbying group, previously said that the law could result in the closure of factories and the loss of 50,000 jobs in the industry.
The association includes four major tobacco players: British American Tobacco, Imperial Tobacco, Japan Tobacco International and Philip Morris International.
In Ukraine, where labor costs are low, British American Tobacco’s 3,000 workers produce 90 billion cigarettes a year. Out of those 90 billion, 30 billion are exported from the country.
As a result, BAT is the largest cigarette producer in Ukraine and manufactures global brands as Rothmans, Dunhill and Lucky Strike.
On Oct. 11, it halted production for two weeks over the potential adoption of the bill.
BAT then resumed production on Oct. 24, 2019 after a meeting with Zelensky. On Nov. 7, 2019, another meeting took place between Zelensky and tobacco industry representatives, who termed it a “productive meeting,” Ukrainian media reported.
Pressure to veto the bill didn’t only came from tobacco lobbyists. The European Business Association asked the Ukrainian president not to sign the law, as it could have a significant negative impact on business in Ukraine, media reported on Oct. 23.
On Feb.13, the U.S.-Ukraine Business Council sent a letter to Zelensky making a similar request.
Anti-smoking activists say the veto is a bad omen for future tobacco policy.
“This decision was made under the pressure of tobacco corporations. So, Zelensky vetoed the entire bill because of this margin amendment. It is an explicit example of tobacco lobbying in Ukraine,” said Lilia Olifer, executive director of the Advocacy Centre LIFE nonprofit.
Still, the veto does not mean that cigarette prices will not increase. According to the government’s seven-year plan for raising tobacco prices, which came into effect in 2018, prices will still go up.
In 2018, the minimum excise tax was increased by 29.7% up to $20. Since 2019, tobacco taxes are to be raised by 20% annually, with an option to propose an inflation adjustment.
According to Olifer, increasing excise taxes is a better way to raise cigarette prices than increasing the margin. But the bigger issue is the extensive influence tobacco companies have in Ukraine, she said.
This situation also violates the World Health Organisation’s Framework Convention on Tobacco Control, that Ukraine signed in 2006. It stipulates that tobacco companies should not be able to lobby state officials.
According to the World Health Organization’s 2013 standardized estimate of smoking prevalence, 44.2% of men, 9.9% of women and 25.4% of Ukraine’s adult population overall are daily tobacco smokers. In 2019, statistics showed that tobacco kills 85,000 Ukrainians annually.