3.8 billion UAH in the shadows: shadow cigarette market leads to record excise shortfall in October 2026

The shadow market for tobacco products dealt a tangible blow to the Ukrainian state budget revenues in October 2026. According to Danylo Hetmantsev, head of the Verkhovna Rada Committee on Finance, Tax and Customs Policy, in the last month of autumn alone, the state budget underperformed by 18.8 billion UAH in VAT and excise taxes combined. The bulk of the shortfall falls on the tobacco industry, where the plan was missed by 3.8 billion UAH, or 32.4% of the target figure. Simultaneously, the monthly revenue plan for VAT fell short by 11.7 billion UAH, which Hetmantsev characterizes as a record 32% deviation.

"A diagnosis, not a technical deviation"

In his Telegram channel, Hetmantsev emphasizes that excise and VAT in October 2026 became the two taxes with the worst performance against revenue targets. "The performance figures are not a 'technical deviation,' but a diagnosis. Systematic work on de-shadowing should yield results primarily in VAT and excise, and this is exactly where it has failed," the parliamentary tax committee chairman stated. Thus, he effectively blamed the current tax administration system for its inability to curb the outflow of revenue into the shadow sector.

Shadow market dynamics: Kantar figures

The statistics cited by Hetmantsev are consistent with market data. According to the latest study by Kantar Ukraine, the share of illicit products in the cigarette market reached 21.6% in July 2026, the worst figure in the last two years. At the same time, steady growth is recorded: in February 2026, the share of illegal cigarettes was 17.6%, and in April, 19.8%. The e-cigarette market, according to the same study, is almost entirely in the shadows. The expected annual losses to the state budget from the illegal cigarette market, according to Kantar's calculations, amount to a record 36.4 billion UAH.

Expert assessment and government reaction

Investigative journalist Yevhen Plinsky agreed with Hetmantsev's assessment, noting in his Telegram channel a paradox: despite weekly meetings between Prime Minister Serhiy Koretsky and law enforcement on de-shadowing, the change of the head of the State Tax Service, and specific tasks assigned to the National Police and the Bureau of Economic Security, revenues from excisable goods and VAT continue to decline. Plinsky also pointed to an increase in counterfeit cigarette outlets, the supply of non-excise solvents for the production of counterfeit fuel, and the spread of liquids for e-cigarettes.

Priorities for de-shadowing: what the government promises

In October 2026, chaired by Prime Minister Serhiy Koretsky and Finance Minister Serhiy Marchenko, a meeting of the Interagency Working Group on Economic De-shadowing was held, where its composition was updated and key priorities were defined. In the area of countering the illegal tobacco market, the focus is on systematic analytical work and strengthening control measures over illegal production and the movement of goods across the customs border. Among the priority measures are taxing e-cigarettes and their liquids, combating smuggling, liquidating tax evasion schemes, as well as strengthening control over the targeted use of humanitarian aid and the introduction of electronic document management. Progress reports on each area will be made monthly. In parallel, Ukraine is discussing increasing fines for the illegal sale of e-cigarette liquids to 250,000 UAH.