Philip Morris International, a company that failed to fulfil its promises to exit the Russian market after the full-scale invasion of the Russian army into Ukraine, remains amongst largest taxpayers contributing to the Russian budget.
In February 2023, PMI CEO Jacek Olczak told The Financial Times that negotiations on the exit ‘stalled’ as the company does not want to sell the business ‘on unfavourable terms for shareholders’. Meanwhile, PMI retains tax preferences for conducting business in Ukraine.
In Ukraine, Philip Morris International is officially recognized as an international sponsor of the war – it was included in the relevant list of the National Agency on Corruption Prevention (NACP) in 2023 – after the Russian PMI unit reported that the company’s net profit in the first year of Russia’s full-scale invasion of Ukraine increased to 48.2 billion rubles (45% more than in 2021), and the corporate tax in the Russian budget was paid in the amount of more than $136 million.
Over the past three years, Philip Morris International in Russia has steadily increased its revenue and is in the top 5 foreign companies paying taxes to the Russian budget. In 2021, Philip Morris’ revenue was 359.53 billion rubles, in the first ‘war’ year it increased to 392.9 billion rubles, and in 2023, the company reportedreceiving 399.9 billion rubles.
Despite these indicators, which should have alerted the Ukrainian government seeking new sources of income during the war with Russia, Philip Morris International enjoys a preferential ad valorem tax rate in Ukraine, which does not exist in any other country – 12%.
Ukrainian journalist Denis Bezlyudko drew attention to the paradoxical situation with the use of tax preferences by the international company PMI in Ukraine.
According to the investigator’s data, until 2013, the ad valorem tax rate on cigarettes in Ukraine was 25%.
As Ukrainian media reported, in 2013, there was a monopolization by international tobacco companies not only in the sphere of cigarette production, but also in their distribution – Philip Morris International and JTI acquired 20% each inequity interest of the Russian distributor company Megapolis, which owned the Ukrainian subsidiary company-monopolist Megapolis-Ukraine (subsequently, the Ukrainian company was renamed to Tedis).
Parallel to the market monopolization (still under President Viktor Yanukovych, whose government was accused of massive corruption), the ad valorem tax rate was reduced to 12%, providing PMI with additional income.
Paradoxically, the rate remains at this level to this day – against the growing state budget deficit.
“The situation has been cemented. Legislations that co
In Europe, which we like to compare ourselves to, ad valorem tax rates on cigarettes, for the most part, range from 25% to 50% (in some countries even higher). According to experts’ estimates, over 11 years of the reduced rate, the Ukrainian budget lost about 100 billion hryvnias”, – writes Bezlyudko.
Despite the fact that the Ukrainian government, against the backdrop of the cessation of assistance from the United States, is looking for new sources of budget replenishment and cost reduction, the issue of taxation for remaining international companies in Russia is not being discussed in Parliament and society. The same ad valorem tax rate within the price of cigarettes is paid by both those who buy premium products and those who smoke “Vatra” (Ukrainian cigarette products in the cheaper price segment).
“In Russia itself, the ad valorem tax rate is 16% […] In the vast majority of EU countries, ad valorem tax rates are significantly higher and sometimes reach 50%. In other words, a wealthy smoker who smokes expensive premium cigarettes pays more tax than a smoker of cheaper cigarettes.
“And we have equalized taxes on Prima and Marlboro”, – believes the director of the Ukrainian Center for Civil Society Studies, political scientist Vitaly Kulik. – “The difference is that Prima is of domestic production and does not operate in Russia, while the manufacturer of the Marlboro brand, Philip Morris, still finances the Russian army, killing Ukrainians”.
The Ukrainian expert community proposes, at most, to introduce restrictions for tobacco companies that have not yet left Russia, and at least – to increase the ad valorem tax rate for brands that these companies sell in Ukraine.
The problem of international companies that have remained in the Russian market has also been faced by European countries.
The case of Estonia is interesting. Here,in March, the Minister of Defence issued an order prohibiting the trade of products from compani
Main Image: By Jinhai – File:Philip_Morris_Izhora.jpg, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=35928542
