Ukraine has taken third place among 38 European countries in terms of the volume of illicit tobacco products sold. This is evidenced by the data from a new report by KPMG. Statistics show that, despite a general decline in volumes, the problem remains critical for the economy and the health of the nation.
Figures of the shadow economy
According to the KPMG study, by the end of last year, the total volume of the illicit tobacco market in Ukraine fell to 5.07 billion cigarettes. This is 15% less compared to 2024, when this figure was 5.98 billion. The share of illicit products in total consumption dropped to 15.9%. Analysts note that the Ukrainian market managed to overcome the critical peak of illicit trade observed in 2023, when every fifth cigarette in the country (21.8%) was produced or imported illegally.
The figures were influenced by a twofold reduction in the volume of quasi-legal products intended for duty-free trade. The volume of illicit cigarettes marked "For Duty Free Sale" in 2025 dropped to 1.95 billion units. For comparison, in 2024 this figure was 2.2 billion, and in 2023 it reached a peak of 4.45 billion cigarettes.
Classic smuggling and counterfeits
A rapid decline in the volume of classic smuggling was also recorded – almost halving in a year: from 0.69 billion in 2024 to 0.38 billion in 2025. At the same time, the volume of direct counterfeits (copies of well-known brands) decreased less significantly – from 3.09 billion to 2.74 billion cigarettes, remaining the largest component of the tobacco "shadow".
Parallel to this, the outflow of smuggled cigarettes from Ukraine to European Union countries also decreased. In 2025, the total volume of exports fell by 10% to 0.35 billion cigarettes. The main transit destinations remain Poland (0.15 billion) and the Czech Republic (0.05 billion).
Why optimism is premature
The decline in the shadow sector occurred against the backdrop of a general contraction of the measured tobacco market in Ukraine. In 2025, total consumption (including legal and illegal segments) fell by 14% – to 31.93 billion cigarettes. The volume of legal domestic consumption stabilized at 26.86 billion units.
According to Maxym Barabash, representing the top management of Philip Morris International, the real situation with the shadow market remains extremely difficult, and the positive statistics are shaky.
"Customers in kiosks simply ask for 'the cheapest cigarettes'. They are sold illicit ones for 70 UAH, although the minimum tax on a pack alone should be 100 UAH. When there is no illicit product, people buy the legal product for 110 UAH", says Barabash.
He assures that in 2024 the legal market began to grow exclusively under external pressure – in particular, thanks to G7 ambassadors and US Special Envoy Penny Pritzker. They directly pointed out to the Ukrainian authorities that the fight against illicit tobacco is a condition for providing financial assistance.
There is currently no US Ambassador in Ukraine, the G7 position is vague (Italy does not consider this a priority), and the level of the illicit market, which previously fell to 16% (according to current Kantar data), has gone up again.
How illicit traders bypass the system
Tobacco is imported into the country in huge volumes under the guise of raw materials for hookahs through an obscure company. Currently, raw materials for 5 billion cigarettes are imported this way, which are officially produced nowhere.
A similar situation also exists with the import of acetate fiber (for filters) and the filters themselves (filter rods), which are imported into Ukraine in significant volumes, and proper control of these supply sources is an important component of the fight against illicit trade. Great hopes are pinned on the State Customs Service, which recently received a new head, and its interaction with the State Tax Service and the BEE (Bureau of Economic Security).
Thanks to huge profits, shadow operators buy ultra-modern production lines for $10 million. Today's illicit product is visually almost indistinguishable from the original.
The problem of inter-agency coordination
To date, there is no single body in Ukraine that would comprehensively address the problem of illicit tobacco. The tax authority checks only in the presence of a license, the police – in its absence, the BEE is supposed to deal with organized criminal groups and Telegram channels, but the BEE does not even have a department in the key Dnipropetrovsk region. Each department simply reports: "We did our job from 9 to 6".
The state persistently fights against retail sales points, which Barabash calls "nonsense" and "killing flies in the apartment instead of closing the window". One must fight exclusively with production, he is convinced. Instead of liquidating illegal factories, the Ministry of Finance and the tax authority are proposing... (text cuts off).
