Association: will Latvia step on Estonia’s excise tax rake?
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 bnn-news.com