Latvian alcohol industry has an offer to increase excise tax rate
Experience shows – rapid increase of excise tax results in rapid increase of prices and rapid decline of revenue for the state treasury. Based on careful calculations, Latvian Alcohol Industry Association asks the government to stick with the current excise tax increase plan.
At the same time, LANA offers a compromise – if the planned tax volume is not collected in full amount in the first half-year, businessmen of this industry will support the introduction of a higher excise tax rate for alcoholic beverages in the second half of 2018 to compensate lost taxes.
«The unplanned tax increase offered by Finance Ministry comes as a spontaneous reaction with hopes of gaining funding to afford the realization of the tax reform. But our calculations show that it will not happen,» says LANA CEO Davis Vitols.
He continues: «The industry predicts a major decline of turnover for legal alcohol, a major increase of the illegal market, as well as lost opportunities when compared with neighbouring countries. This will create additional pressure for supervisory institutions. We are confident in our calculations. This is why we ask decision makers to give us six months to prove their worth.»
Businessmen remind historic experience when revenue dropped for the state and businesses after a rapid increase of excise tax for strong alcoholic beverages. Tax rate grew 41% over the course of 200 – 2011. During this period of time legal sales declined 44% and excise tax revenue dropped 16% (EUR 16 million). ON top of that, the state lost EUR 35.6 million in VAT. Experience of other countries also shows that excise tax policy is an important instrument for controlling revenue. For example, Estonian buyers brought Latvia’s economy EUR 8.5 million in excise tax revenue and EUR 5 million in VAT revenue after excise tax was increased in their country in 2016. Representatives of the association also mention that Belgium performed excise tax increase over a course of two years, hoping to thereby find an additional EUR 200 million. Instead the market suffered a 30% decline. The total amount collected in excise tax was EUR 50 million, whereas losses accounted for EUR 70 million.