According to a study by the Growford Institute, Ukraine's state budget could lose at least 18.3 billion hryvnias in excise tax in 2026 due to the illegal electronic cigarette market. Analysts warn that about 96% of the vape market operates in the shadow economy, and current penalty mechanisms are unable to stop illegal trade. RBC-Ukraine reports this citing data from the institute.
Scale of Losses: From UAH 18.3 Billion in 2026 to UAH 30 Billion in 2028
Growford Institute experts forecast a steady increase in budget losses: while the shortfall will be at least UAH 18.3 billion in 2026, this figure could rise to UAH 23.5 billion in 2027 and approach the UAH 30 billion mark by 2028. To illustrate, analysts compare excise revenues: in 2025, the budget received about UAH 122 billion in excise tax from the sale of conventional tobacco cigarettes, whereas the state received only about UAH 0.5 billion from the sale of electronic cigarettes. A gap of more than 200 times indicates that the vast majority of vape turnover bypasses the treasury.
The "Self-Mixing" Scheme: How Excise Tax is Evaded
Analysts call the sale of so-called "self-mixing" kits — sets of components from which the buyer independently prepares e-liquid — one of the most common tax evasion schemes. According to the Growford Institute, such kits currently account for about 50% of the Ukrainian vape liquid market. The tax-saving mechanism works as follows: for 30 ml of finished liquid, the state should receive about UAH 450 in excise tax, but when selling a self-mixing kit, the budget receives at most the excise tax from a 3 ml nicotine booster (10% of the finished liquid), i.e., only UAH 45. Thus, the tax burden is reduced tenfold.
Why Fines Do Not Work
The current minimum fine for the retail sale and gratuitous distribution of nicotine and liquid components is UAH 25,000. Analysts believe this amount does not have a sufficient deterrent effect because illegal trade remains highly profitable. According to the institute's estimates, a single vape retail outlet in a shopping mall can generate from UAH 10,000 to UAH 15,000 in revenue per day. As a result, after raids and product seizures, sellers generally suspend operations for only a few days or reduce their assortment before resuming activities.
Growford Institute Recommendations
To combat the illegal market, analysts propose a comprehensive set of measures. First and foremost is raising the minimum fine for the retail sale and gratuitous distribution of nicotine and liquid components to UAH 250,000, a tenfold increase. It is also proposed to legally ban the retail sale and gratuitous distribution of propylene glycol, food flavorings, and glycerin — the main components for "self-mixing" — at electronic cigarette sales points. Separately, experts recommend tracking and stopping business fragmentation schemes, where several individual entrepreneurs operate at a single retail point, registering the sale of different kit components among themselves. Furthermore, the Growford Institute considers it appropriate to ban the issuance of retail licenses for excise goods to enterprises previously deprived of such licenses, as well as to persons associated with offenders, and to provide liability for landlords who continue to rent space to violators.
Coordination and Supply Chain Control
Additional recommendations include strengthening the coordination of law enforcement and regulatory bodies in combating the illegal trade in electronic cigarettes. Analysts suggest regularly inspecting vape retail networks and tracking the supply chains of raw materials and equipment for liquid production. Experts believe it is advisable to involve local self-government bodies and postal operators, through which illegal products are often delivered, in such work. The combination of proposed measures, according to the Growford Institute, can significantly increase the effectiveness of tax authorities and reduce the scale of the shadow economy in the electronic cigarette segment.
