Estonian ministry: Higher beer excise duty likely to raise prices of other goods as well (3)

An alcohol store in Estonia. (Postimees/Scanpix)
11/23/2016 3:53 PM
Source: BNS
Category: Business

The planned substantial hike in the rate of the excise duty on low-alcohol beverages in the coming years will apparently force major retail chains to cut the markup on beer and to apply wider markups to other goods to avoid loss of income, a senior Estonian official said at a conference on Wednesday.

"The rise of the beer excise duty at an accelerated rate will likely make major retail chains cut their markups on alcohol in order to not take a loss in sales," said Dmitri Jegorov, deputy secretary general of the Ministry of Finance, at a conference on alcohol organized by the National Institute for Health Development. "The reduction will be compensated by raising markups on other goods — this looks very likely."

Cross-border trade is expected to pick up in the coming few years as well, with more people living near Estonia's southern border going to Latvia to purchase alcohol.

"Latvia will not increase the excise duty at an accelerated rate; they will stick with what they have now," said Jegorov. "Considering their incomes, it isn't possible for them to raise it."

The official also described increased pressure from the shadow economy as "logical and likely to happen" as a result of the alcohol tax hike.

Jegorov pointed out that three in four people in Estonia do not currently buy alcohol on the other side of the border.

"If they don't change their behavior and start to go there, they will either reduce consumption or buy at a higher price — these are the options they have," he said.

A potential effect of the duty hikes is that Finns will stop buying alcohol in Estonia and start looking for possibilities to bring it from Latvia, according to Jegorov.

The official said that while at present a standard box of cans of beer costs 11 euros in Estonia, it will soon cost 18 euros. In Finalnd a similar box costs 21-22 euros. "The Finns will no longer come to Estonia; they will start going to Latvia," he said.

The new Estonian coalition government to be sworn in on Wednesday is planning to raise the beer excise duty by 65 percent to 13.7 cents per percentage by volume for a liter of beer as of July 2017, and by 166 percent from the present to 22.09 cents per percentage by volume for a liter of beer by 2020.

"In deciding on the rise in alcohol excise duty rates, it has been reckoned with that cross-border trade between Finland and Estonia will decrease somewhat and will increase somewhat between Latvia and Estonia," Maria Murakas, of the Ministry of Finance's public relations department, told BNS on Tuesday.

Editor: Aili Vahtla

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