Black market costs Ukraine one billion USD each year — who are the worst culprits?

15 April, 07:00 PM
Black market costs Ukraine one billion USD each year — who are the worst culprits? (Photo:Paolo Bendandi \Unsplash)

Black market costs Ukraine one billion USD each year — who are the worst culprits? (Photo:Paolo Bendandi \Unsplash)

The Ukrainian budget loses billions of hryvnias every year due to shady schemes in the tobacco, alcohol, and oil and gas industries, economist and Economic Expert Platform coordinator, Oleh Hetman, wrote in his column for NV Business on April 15.

Losses from tax evasion in these sectors alone amounted to UAH 60 billion ($2.2 billion) in 2021.

According to the calculations of experts, there has been a break in the trends of the shadow sector  of the excisable goods market, Hetman noted.

For example, the shadow economy share in the oil and gas sector decreased from 27% in 2020 to 11% in 2022. The losses still amounted to about UAH 10 billion ($270.6 million) per year.

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"In 2022, there were significant changes in the fuel market as part of the domestic production was destroyed and the work of inspection bodies intensified, which complicated the plans of shady schemes," Hetman said.

The share of shadow revenues in the tobacco industry showed mixed trends. Last year, it amounted to about 20%, costing Ukraine up to UAH 19 billion ($514.1 million) per year.

In 2020-21, 15% of Ukrainian smoked cigarettes, 5% vaped, and 6% smoked e-cigarettes; by 2022, the numbers changed to 12% cigarettes, 10% vaped, and 10% used heating devices, according to the Kyiv International Institute of Sociology.

Cigarette consumption per smoker decreased in 2022 by 6% compared to 2021 — 7,000 vs. 7,600 cigarettes per year.

The share of illegal tobacco products in the Ukrainian market increased to a record 21.9% in the summer of 2022, said Kantar. The share dropped to 18% in Autumn 2022, before ending the year at 19.9%.

The black market for alcohol has shown a downward trend in recent years, decreasing from 41% in 2018 to 36% in 2022, costing the country around UAH 9 billion ($243.5 million) per year.

The alcohol market is characterized by a large black market and significant budget losses, according to Accounting Chamber of Ukraine data for 2022.

The amount of excise tax shortfalls due to the black market in alcohol could have costed Ukraine UAH 11.84 billion ($320.4 million) last year, compared to UAH 9.99 billion ($366.2 million) in 2021.

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