As­so­ci­a­tion: will Latvia step on Es­to­nia’s ex­cise tax rake?

Baltic News Network - - News -

Rapid and eco­nom­i­cally un­jus­ti­fied in­crease of the ex­cise tax has cut a big hole in Es­to­nia’s bud­get, ac­cord­ing to Lat­vian Al­co­hol In­dus­try As­so­ci­a­tion. Be­cause strong al­co­holic drinks cost less in Latvia, Es­to­ni­ans reg­u­larly travel to Lat­vian to buy cheaper al­co­hol, says the as­so­ci­a­tion’s CEO Dāvis Vī­tols.

Es­ti­mates from Lat­vian Al­co­hol In­dus­try As­so­ci­a­tion show that Es­to­ni­ans’ al­co­hol trips to Latvia had brought he coun­try’s bud­get at least EUR 40 mil­lion. «Es­to­nia’s ex­am­ple proved that un­jus­ti­fied ex­cise tax in­crease does not guar­an­tee tax rev­enue for the state bud­get. What it does is ex­actly the op­po­site of the de­sired ef­fect: buy­ers turn to cheaper al­co­hol of­fers in neigh­bour­ing coun­tries and the il­le­gal al­co­hol mar­ket. Last year, Es­to­nia’s bud­get re­ceived EUR 50 mil­lion less than it was planned. Rev­enue from al­co­hol trade alone had de­clined by ap­prox­i­mately EUR 30 mil­lion. Com­pared to a year be­fore, the vol­ume of legally sold high-grade al­co­hol in Es­to­nia has de­clined 33%, which cre­ated mas­sive losses for Es­to­nia’s bud­get and al­co­hol pro­duc­tion sec­tors of neigh­bour­ing coun­tries,» says Vī­tols.

Ac­cord­ing to him, Latvia also plans to raise ex­cise tax rate in the next three years: by 15% this year, 10% next year and 10% more in 2020. «Tax in­crease is planned in spite of the fact that ex­cise tax and VAT to­gether for 70% of the price of high-grade al­co­hol, sometimes close to 90% of the price. Now we are about to fol­low Es­to­nia’s tax pol­icy, which turned out rather badly for them. Latvia had stepped on this kind of tax rate once be­fore – in 2009, when ex­cise tax on al­co­hol was in­creased by 41%. Af­ter this in­crease, rev­enue from sales of high-grade al­co­hol de­clined by ap­prox­i­mately EUR 20 mil­lion. Le­gal al­co­hol trade had de­clined 45% that year. To­gether with un­col­lected VAT and other taxes, Latvia’s bud­get lost ap­prox­i­mately EUR 100 mil­lion. Ev­ery­thing points that Latvia has for­got­ten about 2009 and Es­to­nia’s ex­pe­ri­ence,» says Vī­tols. «Lat­vian politi­cians have to an­a­lyse this data and think hard on the dy­nam­ics of rais­ing ex­cise tax. As we had pre­vi­ously stated – there is no real cor­re­la­tion be­tween in­creased tax and bud­get rev­enue. The cur­rent plan to raise ex­cise tax for al­co­hol means Latvia has learned noth­ing from 2009 and Es­to­nia’s ex­pe­ri­ence,» ad­mits the as­so­ci­a­tion’s CEO. The full text is avail­able on

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