New Tax Stamps Part of Ukraine’s Plan to Eliminate Shadow Economy

Ukraine’s Ministry of Digital Transformation has announced that new excise stamps for tobacco and alcohol will be introduced in the country from 1 March 2025, and that they will be linked to the country’s extensive e-governance platform.

The move is in line with President Volodymyr Zelenskyy’s call for the country’s shadow economy to be eliminated.

‘Now there’s a lot of discussion in Ukraine about what our economic policy should be, both during the war and when we restore peace,’ Zelenskyy said.

Current tax stamps used on alcohol products 

 

‘In wartime, any economic activity, whether official or nonofficial, is a matter of survival. However, if we talk about the normal, stable, and strong life of society, the work of the state, our defence, we have to get used to the fact that there can only be two parts of society: those who defend our independence and those who work in a way to ensure that defence. And this is not a question of one or another economic doctrine, nor a question of one or another political position. We simply cannot afford to have a ‘shadow’ part of the economy in the country.

‘So, this means official employment. This means the payment of taxes. This means the maximum expansion of economic opportunities in our country on legal grounds. And this means a complete modernisation of state institutions,’ he said.

Half of all trade is illicit

National studies of Ukraine’s total illicit trade between 2014-2022 show that levels remained stable, at around 30%, until 2022, when they shot up to 50%.

This included a rise in the number of cigarettes smuggled into the country without tax stamps, as well as an increase in the illicit home brewing of alcoholic beverages.

According to the World Health Organisation and Kantar Ukraine data agency, every fifth pack of cigarettes and every third bottle of alcohol were sold illegally in Ukraine in 2022, amounting to much-needed lost revenues of $820 million per year. According to Kantar, 8% of tobacco and alcohol products sold in Ukraine in 2022 carried counterfeit excise stamps and 12.2% didn’t carry any stamps at all.

The overall surge in the shadow economy during wartime was facilitated by the infiltration of criminals into government departments and businesses, as well as by a state of general government instability. For instance, within the space of one year, the head of customs changed five times, the head of the tax service four times and the minister of finance three times.

Tax stamps and e-governance

With the new tax stamps, consumers will be able to scan a serialised 2D barcode on the stamps using the e-governance Diia app. This will allow them to access information on product description, manufacturer, place and date of production, current location of the product, and stamp status.

If the stamp bears the wrong information or is inactive, one click will be enough to notify the government via Diia.

‘Diia’, which in Ukrainian means ‘action’, is also an acronym for ‘meet the state’. Created in partnership with the United States Agency for International Development, this mobile app and online portal currently connects about half the country’s population with more than 120 government services – including benefit schemes, tax declaration services, and business registration and management services – as well as giving citizens access to numerous government documents.

The country’s goal is to digitise all government services by 2024 – despite being at war.

The Ministry of Digital Transformation believes that the tax stamp and traceability system will help to shrink the illegal market, and boost budget revenue from excisable goods, by 15%.

Current stamps

The stamps currently used in Ukraine on cigarettes and spirits are produced by the state enterprise Polygraph Combine Ukraina.

At one stage, back in 2017, the possibility arose of replacing the paper-based stamps with directly printed excise marks. The marks would link to a comprehensive track and trace system requiring supply chain operators to record the movement of products in a unified register.

However, in 2020, Ukraine decided instead to upgrade its paper-based alcohol stamps by incorporating two barcodes into them: a linear barcode to allow retailers to use their existing barcode scanners, and a QR code to allow consumers to verify the product and obtain information about its provenance.

Given that serialised, secure tax stamps therefore already exist for alcohol products, it will be interesting to see how the new tax stamps will differ from them.

Stamps on eBay

It will also be interesting to see whether it will be more difficult to remove the new stamps from the product than is currently the case with the existing – as well as previous – stamps.

The apparent ease with which it is possible to remove the current stamps is illustrated by a sales post on eBay for a set of Ukrainian cigarette and alcohol stamps.

Although the seller warns potential buyers that the stamps have been ‘removed from wine and vodka products and packs of cigarettes and tobacco,’ and that ‘some of them are a little repaired by adhesive tape,’ they seem to be in good enough condition to be sold to a collector.

What is of more concern, however, is that photos of the stamps show them to be in good enough condition to be potentially reused on an illicit product, with a photo of their reverse side revealing virtually intact surfaces, sometimes with very few traces of glue.

Front and back of Ukraine tobacco and alcohol stamps for sale on eBay 

 

So, if the new tax stamps are to provide any valuable contribution to vanquishing the all-pervasive shadow economy in Ukraine, they will need to be highly robust against both counterfeiting and reuse.