A 25% tax preference for heated tobacco products is a textbook example of tobacco industry interference

Regulatory capture: industry interference in the development of the draft law

Law No. 4115-IX was drafted by the Ministry of Finance of Ukraine in cooperation with the tobacco industry, as openly stated by Deputy Minister of Finance of Ukraine Svitlana Vorobey [1].

Such actions by the Ministry of Finance of Ukraine in the interests of the tobacco industry violate Article 4 of the Law of Ukraine “On Measures to Prevent and Reduce the Use of Tobacco Products and Their Harmful Effects on Public Health” and international obligations undertaken in accordance with the ratified WHO Framework Convention on Tobacco Control (WHO FCTC). Article 5.3. The WHO FCTC stipulates: “In  developing  and  implementing  their  public  health  policies  to  combat  tobacco,  the  Parties  shall  act  in  such  a  way  as  to  protect  their  policies  from  the  influence  of  commercial  and  other  corporate  interests  of  the  tobacco  industry  in  accordance  with  national  legislation.”

When drafting the law, the Ministry of Finance of Ukraine ignored the position of the Ministry of Health and expert public opinion, not affiliated with the tobacco industry, regarding the inadmissibility of creating a 25% tax preference on excise duties for HTPs and the need to introduce a more intensive schedule for increasing excise duties on tobacco products, which would reduce the affordability of tobacco products in accordance with the recommendations of the World Bank.

Representatives of the Ministry of Finance, who defended a weak plan to increase excise duty on cigarettes and tax preferences for HTPs:

• Svitlana Vorobey, Deputy Minister of Finance of Ukraine, stated that maintaining lower excise tax rates on heated tobacco products would help reduce illegal trade in tobacco products. At the same time, no confirmed data on the effectiveness of such a tax policy was provided. She emphasized the need to encourage tobacco consumers to switch to heated tobacco products [1]. Thus, in fact, the issue was not about combating illegal trade, but about encouraging the consumption of a specific category of tobacco products through tax preferences. This approach contradicts both Ukraine’s obligations under the WHO Framework Convention on Tobacco Control and the basic principles of public health policy, which call for reducing tobacco consumption, not encouraging it.
• Yurii Drahanchuk, Deputy Minister of Finance of Ukraine for European Integration, emphasized that the excise tax on HEETS should be lower than on cigarettes, since “there is potentially a lower risk of HEETS consumption than cigarettes.” He justified the weak plan to reach €90, given the risk of an increase in illegal trade: “tax increases should be implemented in such a way that, in principle, businesses can pay them” [3]; 
• Viktor Ovcharenko, Director of the Tax Policy Department of the Ministry of Finance of Ukraine, stated during a meeting of the Working Group of the Committee on Finance, Tax and Customs Policy on November 22, 2024, that the provisions of the draft law had been agreed upon with tobacco product manufacturers [2]; He spoke out against increasing the ad valorem rate, while Deputy Minister of Finance Yuriy Draganchuk supported the increase at a meeting on May 31, 2024.
• Tetiana Potopalska, member of the Expert Council on the Preparation of General Tax Consultations at the Ministry of Finance of Ukraine, defended the government’s version of the bill, noting that Directive 64 provides for a four-year implementation period, so the plan to reach €90 by 2028 fits within this timeframe. This is despite the fact that Ukraine began its journey towards achieving the EU minimum excise duty in 2015 [1].

Interference through members of parliament

A typical tactic of the tobacco industry is to influence the legislative process through political representatives and members of parliament. This manifests itself in facilitating the preparation of draft laws, introducing amendments that soften regulations, or blocking initiatives that restrict the sale and marketing of tobacco products. Lawmakers often act as intermediaries to promote the interests of the industry by participating in public discussions, committee meetings, and working groups, creating the illusion of political support for decisions that benefit the tobacco industry. This strategy allows them to influence legislation by masking their commercial interests under political or social arguments.

In particular, this tactic could be observed during the consideration of draft law No. 11090 in the Verkhovna Rada. A 25% excise preference for TVEN and a weak plan to increase taxes on cigarettes were strongly defended by individual MPs, some of whom had already been repeatedly spotted engaging in activities in the interests of tobacco companies. Among them were:

• the head of the Tax Policy Committee, Danylo Hetmantsev, noted that the Ministry of Finance’s proposal is a compromise with the tobacco industry, so it is worth sticking with it in order to avoid starting the approval process from scratch [1]. During the Committee meeting on November 22, he noted that the International Monetary Fund supports tax preferences for HTPs [2, 4], despite the absence of such a fact;
• Marian Zablotskyi, during a working group meeting of the Committee on Finance, Tax and Customs Policy on October 15, 2024, opposed the increase in excise taxes on tobacco products, emphasizing that “there is no point in raising excise taxes on tobacco without solving the problem of illegal tobacco trade” [1, 2, 3]. Until August 2019, Marian Zablotsky headed the NGO “Ukrainian Society of Economic Freedoms”, which received $427,000 from the tobacco company Philip Morris International between 2017 and 2019 [5, 6, 7].
• Ihor Kryvosheiev registered an alternative draft law No. 11090-2, which also proposed a delayed plan to increase the excise tax rate to €90/1,000 units by 2029 and maintain tax preferences for HTPs [8];
• Oleksii Movchan, during the Committee meeting on November 27, 2024, supported preferential taxation of HTPs compared to cigarettes and defended the interests of Japan Tobacco International, a tobacco company sponsoring the war, because “this business develops social infrastructure, has ‘white’ salaries, very high, with social protection for employees, technological management, extraordinary exports, and so on,” and in order to prevent the growth of illegal trade [9, 10];
• Andrii Motovylovets supported the 25% preference on HTPs, appealing to arguments about the absence of an illegal HTP market, and that “taxes can also be used to combat smuggling, and this is a way to combat smuggling” [9];
• Dmytro Natalukha noted that business associations had approached him, so he supports the government’s version of the draft law [1, 9];
• Oleksii Ustenko noted in working groups of the Finance Committee and in publications that excise taxes on HTPs are significantly lower in European countries than on cigarettes, and that a sharp increase in excise taxes will lead to an increase in the illegal trade of tobacco products [1, 2, 3, 9, 11];
• Alona Shkrum supported a 25% tax preference for HTPs compared to cigarettes, arguing that it was economically beneficial: “99.9% of the HTP market is white,” and “the industry provides employment and high salaries” [1, 2, 3, 9];
• Halyna Yanchenko supported the government’s version of the draft law, in particular the preference for HTPs, because “it is necessary to create liberal conditions for business,” “the EU directive provides for differentiation given that HTPs are less harmful,” which is not true (the current Directive 2011/64/EU does not regulate HTPs) [9].

Lobbying through pressure groups

The tobacco industry actively uses pressure groups to promote its commercial interests. These are organized associations that systematically influence decision-making, policy, or public opinion in the interests of certain parties. They include business associations, industry associations, think tanks, and non-governmental organizations.

During the consideration of draft law No. 11090, this mechanism was used to its full extent. Representatives of influential groups participated in key meetings of the working groups of the Verkhovna Rada Committee on Finance, Tax and Customs Policy, opposed the sharp increase in excise taxes on cigarettes, and actively defended the 25% excise preference for HTPs, using arguments about the “lesser harm of HTPs,” the absence of an illegal market for these products, and the alleged rapid growth of smuggling of traditional cigarettes. During the meetings of the working group on draft law No. 11090, there were about 20 representatives of such organizations [1, 2].

This strategy aims to undermine the adoption of effective anti-smoking policies by promoting messages that serve the commercial interests of the tobacco industry. 

List of organizations and structures that supported the government’s version of the law with a preferential approach to taxation of HTPs

Business associations

• European Business Association (Daria Sichkar) [1, 2, 12]
• American Chamber of Commerce Ukraine (Oksana Shvets) [1, 2, 12]
• U.S.-Ukraine Business Council (USUBC) (Oleksandr Prokhorovych, fiscal regulation manager at Philip Morris Ukraine.) [1]
• Union of Ukrainian Entrepreneurs (Myroslav Laba) [1]
• Ukrainian Chamber of Commerce and Industry (Dmytro Mykhailenko, Mykhailo Nepran) [1, 2]
• Federation of Employers of Ukraine (Oleksandr Yavorskyi) [1]
• Regional branch of the Ukrainian league of industrialists and entrepreneurs in Kharkiv (Eduard Naboka) [1]

Industry and specialized associations:

• Association “Ukrtyutyun” [1, 12];
• Ukrainian Distributors Association (Dmytro Lutsenko) [1].

Think tanks and expert platforms:

• NGO “Growford Institute” (Tetiana Koshchuk, Mykola Pasichnyi) [1, 2, 13, 15, 18, 19, 20, 21];
• NGO “Institute Of Tax Reform” (Maryna Stadnyk) [1];
• NGO “Ukrainian Institute for the Future” (Anatolii Amelin) [14];
• PU “Economic Debating Club” (Oleh Pendzyn) [1, 2]; 
• Economic expert platform (Oleh Hetman) [1, 2].

Involvement of scientists

The tobacco industry attempts to engage scientists to promote solutions that serve its commercial interests. Tobacco companies engage individual researchers or university structures to prepare conclusions that serve the interests of the industry. Such materials are presented as independent expertise, although in fact they reflect a biased interpretation of data or fragmentary research, detached from the global scientific consensus and current WHO recommendations. The use of the status of scientists allows the industry to put additional pressure on government agencies, giving its proposals the appearance of a professional position.

Thus, Natalia Tymchuk, a leading researcher at the Department for Research on Lawmaking and Adaptation of Ukrainian Legislation to EU Law at the Institute of Lawmaking and Scientific and Legal Expertise of the National Academy of Sciences of Ukraine, supported the provision of tax preferences for HTPs and reported that the relevant department had sent a scientific expert opinion on draft law No. 11090 and its compliance with Ukraine’s international legal obligations in the field of European integration and EU law [1]. 

Mykola Pasichnyi, an expert at the Growford Institute organization, systematically defends the interests of the tobacco industry and presents himself as a professor in the Department of Finance at the State University of Trade and Economics: he has prepared analytical notes and publications, participated in meetings of the Committee to discuss draft law No. 11090, and provided comments to the media that serve the commercial interests of the tobacco industry [1, 2, 13, 15].

Involvement of healthcare specialists

Even more cynical is the practice of involving representatives of the medical community. Tobacco companies use doctors or medical experts as public commentators who promote arguments about the “lesser harm” of HTPs or advocate for “gradual” approaches to regulation and taxation. Such voices are presented as the position of health representatives, although in fact they contradict tobacco control policies and the position of the WHO. 

The use of medical professionals misleads society. Such actions contradict the ethical principles of the medical profession and discredit the medical community.

Tax preferences for HTPs were supported by appealing to the lesser harm of tobacco products, which directly contradicts the position of the WHO and the National Standards of Medical Care in Refusing Tobacco Use: Olha Sribna, senior physician at the Strazhesko Institute of Cardiology [16]; Yevhen Symonets, Thoracic Surgeon, Pulmonologist, PhD, Chairman of NGO “All-Ukrainian Respiratory Club” [3]; Olena Kvasha, Doctor of Medical Sciences [2].

Health experts released a series of publications on the “lesser harm” of HTPs during the consideration of the draft law to increase excise taxes. For example:

• A tobacco-free future: innovative solutions in the Czech Republic to combat smoking – the Czech Republic is introducing the principle of harm reduction, in particular by taxing HTPs and electronic cigarettes at a lower rate than traditional cigarettes;

• How can the harm caused by smoking be measured? – Doctor Olha Sribna refers to a study funded entirely by Philip Morris Products SA, promoting the effectiveness of the “harm reduction” approach;

• Heated tobacco products are helping South Korea move away from traditional smoking. A study – a study on the effectiveness of the approach in South Korea, published in the tobacco industry trade media Tobacco Reporter;

• Harmful habits and lung diseases: how to reduce the harm caused by smoking? – Doctor Yevhen Symonets calls the risk reduction strategy the most progressive one.   

The WHO clearly states that there is no reason to believe that heated tobacco products are less harmful than other tobacco products. Independent studies show that the levels of 22 harmful substances in iQOS are twice as high as in conventional cigarettes, and the levels of seven other substances are 10 times higher than in conventional cigarettes. Thus, the use of HTPs is associated with the same risks to the pulmonary system as smoking conventional cigarettes.

In December 2024, the Antimonopoly Committee of Ukraine found that Philip Morris had misled consumers about the reduced harm of IQOS and ordered Philip Morris Sales and Distribution LLC to stop spreading inaccurate information

Manipulation of the IMF’s position

The final argument that ended the discussion in the Committee on Finance, Tax and Customs Policy regarding preferences for HTPs was Danylo Hetmantsev’s reference to the allegedly clear position of the International Monetary Fund on the need to tax HTPs lower than cigarettes [2]. In reality, the IMF did not require Ukraine to create preferences for HTPs, but only recommended a tax range of €49 to €90, emphasizing the need to find a balance between financial goals and health objectives [17].

In the context of a grueling war, demographic crisis, and chronic financial shortages, a rational and fair solution for Ukrainian society would be to impose uniform taxation on HTPs and traditional cigarettes. Thus, Danylo Hetmantsev’s position can be viewed as manipulation in favor of the tobacco industry.