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How much do cigarettes cost or something about excise “cobra effect”

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Decision-making practice in Ukraine often suffers from short-sightedness. Orientation on “low-hanging fruits” moves the costs of such decisions to the shoulders of future generations. Excise policy of the last five years was not an exception from this rule. Due to currency crisis in 2008 the government was forced to compensate budget shortfall with substantial increase of excise duties. But within few years tobacco contraband reached 8.8% of tobacco market thus raising the question of alternative cost of such aggressive policy. Under such circumstances, the government should take into account the European experience and develop schedule of excise increase considering average incomes’ growth. Such approach should minimize the side effects of raising excisable goods’ prices.

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  • Consultative services
  • Publications
  • Fiscal policy

March 19, 2014