VARES took part in a closed working meeting at the Bureau of Economic Security, devoted to the issue of legislative regulation of the electronic cigarette market in Ukraine.

The meeting was attended by representatives of research and analytical organizations (in particular, Kantar Ukraine), business associations and chambers (Ukrainian and international chambers of commerce and industry, the European Business Association, the American Chamber of Commerce in Ukraine, the German-Ukrainian Chamber of Commerce, the Business Ombudsman Council, the Ukrainian Business Council), as well as analytical centers (Growford Institute, Economic Strategy Center, Pro-Consulting, Institute socio-economic transformation and others).

The main topic of the meeting: in fact, the discussion was reduced to one question:
how to build a legislative model that will bring the electronic cigarette market out of the shadows, ensure controlled circulation and generate predictable revenue for the budget — without destroying legal business.

Research and numbers: what's important to consider
During the meeting, a study conducted half a year ago was presented. VARES emphasizes: studies can be useful, but their correctness directly depends on the correct classification of products and devices. VARES previously drew attention to possible classification problems that can distort conclusions. Therefore, it is advisable to consider such materials as one of the sources, but not to use them as the "only truth" for decisions affecting tax policy and control

The discussion also included an assessment of the "budget loss" at the level of UAH 7.6 billion.
VARES position: this estimate is overestimated. According to our calculations, the revenue potential in the current state of the market for a viable model is UAH 3.82 billion.

"The market is growing" - what does it really mean.
Separately, there was a thesis that the vape segment is growing, and therefore the state allegedly does not receive income from traditional tobacco products.

VARES position:
• The transition of some consumers from cigarettes to alternative products is a positive trend for health.
• The task of the state is not to "return everyone back", but to adjust the rules that ensure the fiscal effect in the new structure of consumption: to maintain income at the current level or increase it without stimulating shadow circulation.

Why might 2025 estimates be misleading?
Separate estimates of vape revenues for 2025 were built on the assumption that "very little" was paid, and this seems to be proof of the problem.

VARES notes: using 2025 as a "baseline" for assessing potential is methodologically incorrect, if total bans were in effect during the period, which actually pushed circulation into the shadows. In such a situation, low official numbers are not "market potential" but the result of regulatory deadlock.

Pricing policy is the key to detinization. VARES emphasized again:
a legal product cannot successfully compete if it is 2.4 times more expensive than a shadow product.

If the tax burden makes the legal product more expensive than the shadow product to the extent that even the net excise exceeds the market price of the illegal segment, it is:
• makes the shadow super-profitable and super-attractive;
• reduces the effectiveness of detinization;
• worsens the fiscal result in the medium term.

The only real opportunity for the white segment to displace the shadow is a competitive price under clear and controlled rules.

During the meeting, VARES presented a clear, consistent and numerically-argued approach that allows:
• integrate the market into the legal economy;
• ensure income to the budget;
• create controlled circulation and real administration;
• minimize the incentives for the shadow.

We separately paid attention to the fact that a significant part of public positions on the market still begins with "ban/close/punish". This approach has already shown its consequences: the shadow does not disappear - it only changes its shape.

Conclusion: the meeting was productive and useful as a platform for professional discussion. VARES thanks the Bureau of Economic Security for the opportunity to present the position and specific mechanisms of detinization.

Our approach is simple: regulation should stand on three pillars — numbers, law, and common sense. This is how you can get a controlled market and real revenues to the budget, and not another "paper" control that strengthens the shadow.