Ukraine’s e-cigarette market has surged alongside global trends—but with a critical difference: it is overwhelmingly illegal. According to new estimates presented on Espreso TV by Mykola Pasichnyi, Professor of Finance at the State University of Trade and Economics and an expert at the Growford Institute, the illicit share of Ukraine’s vaping market now stands at roughly 93%. If unchecked, the state could miss out on at least 7.5 billion UAH in tax revenues in 2025—around US$180 million.
Pasichnyi links the rapid expansion of the black market to policy shifts—particularly Ukraine’s bans on the production, import, and sale of flavored e-cigarettes. Similar arcs have played out elsewhere, he noted: early lax oversight followed by tightened restrictions that, without robust enforcement, catalyze illicit trade.
Growford Institute’s breakdown of the shadow market:
- 40%: Smuggled vape liquids, either shipped in varied container sizes or prefilled into devices, largely entering Ukraine via contraband routes.
- 60%: Domestic counterfeit production, sold as DIY mixes or finished illegal products.
The scale is not trivial. In July, Ukraine’s Prosecutor General’s Office referred a case to court involving illegal goods from China valued at 100 million UAH, according to Pasichnyi.
Fiscal impact projections from Growford Institute and the State University of Trade and Economics’ finance department:
- 5 billion UAH in lost excise tax
- 2 billion UAH in uncollected VAT
- 0.5 billion UAH in forgone local retail excise revenues
Total: 7.5 billion UAH in expected revenue shortfalls across national and local budgets in 2025.
Policy backdrop and enforcement gap
The warnings arrive as Ukraine faces EU and IMF pressure to shrink its shadow economy. Yet budget signals appear mixed. MP Yaroslav Zhelezniak notes that the draft 2026 budget reportedly increases funding for the Bureau of Economic Security (BEB) by just 13,500 UAH, with no dedicated financing for BEB reform or customs reform—moves he framed as revealing the government’s true priorities for the business climate.
Pasichnyi argues that combatting illicit excise markets requires more muscle across customs, border guards, the Bureau of Economic Security, the State Tax Service, and local authorities. He points to international precedent: the United States’ 2026 federal budget proposal earmarks US$200 million specifically to fight illegal e-cigarettes—its first such dedicated line item.
Why it matters for vaping and public policy
- Market distortion: A 90%+ illicit share undermines compliant operators and incentivizes unsafe, unregulated products to dominate supply.
- Consumer risk: Counterfeit and smuggled liquids evade quality controls, raising safety and transparency concerns.
- Revenue erosion: At a time of fiscal strain, the projected US$180 million tax gap is material for both national and local budgets.
- Regulatory calibration: Experience from mature markets suggests bans without commensurate enforcement and traceability systems can backfire, driving consumers and supply chains underground.
What to watch
- Any near-term legislative or budgetary moves to bolster customs, BEB, and tax enforcement capacity.
- Implementation of product tracking, digital tax stamps, or licensing reforms for vape liquids and devices.
- Cross-border cooperation to disrupt smuggling routes and wholesale counterfeit operations.
- Potential recalibration of flavor bans or excise structures to balance public health objectives with market compliance.
Bottom line
Ukraine’s vaping sector is expanding—but outside the law. Without increased enforcement resources and smarter regulatory design, authorities risk ceding the market to illicit operators and forfeiting hundreds of millions in tax revenue, even as consumer exposure to unregulated products grows.
