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examined the impact of Ukraine’s tobacco tax harmonization policy, arguing that uniform tax rates applied across all tobacco products—including cigarettes, heated tobacco products (HTPs), and e-cigarettes—may reduce market segmentation and limit manipulative industry pricing tactics while also discouraging tobacco use and increasing government revenue.

The research team, comprised of partners from the University of Bath, Smoke Free Partnership, and IGTC associate director Kevin Welding, analyzed Ukrainian tax data alongside monthly pricing and sales data from March 2019 to February 2022—a period of major tobacco product tax reforms including the January 2021 tobacco tax harmonization. Over this time, HTP sales rose by 278% while cigarette sales declined.

The study found that, before harmonization, the tobacco industry in Ukraine priced HTPs and premium products above their tax rates while keeping economy cigarettes artificially cheap. This strategy, known as overshifting and undershifting, can enable companies to maintain affordability for certain products while maximizing profits on others—while also costing governments significant potential revenue.

In 2021, when the tax per unit/stick for HTPs and cigarettes became the same, researchers observed “price-smoothing” by the tobacco industry—a gradual rollout of HTP price increases to avoid sudden demand shocks. Despite this, the large tax hike still led to meaningful revenue gains for the government. 

The study concluded that taxing HTPs and cigarettes at the same (sufficiently high) rate can reduce the effectiveness of industry pricing tactics and better align with public health and fiscal goals.