Share of alcohol, tobacco tax in Estonia's state budget among largest in EU

Vodka bottles in a store.
Vodka bottles in a store. Source: Anna Aurelia Minev/ERR

The proportion of income from alcohol and tobacco excise duty in Estonia's state budget is among the largest in the European Union at almost 4.8 percent of the budget, a survey by the Foresight Center shows.

"Given the annual deficit of the Estonian health care system will increase to €900 million by 2035, Estonia has used one-sided taxation options to promote healthy behavior," Magnus Piirits, an expert at the Foresight Center, said.

The amount of alcohol excise duty received in 2019 was €225 million which accounted for 2.4 percent of all tax revenues in the state budget. The EU average is 0.4 percent.

"Meanwhile, obesity has emerged as the greatest health risk, which means a need to encourage, for example, healthier diets and exercise," said Piirits.

He said there could be significant savings for the health care system if healthy behavior was promoted through taxes and benefits. This would help to reduce the looming shortfall in health care financing.

"For example, some countries have introduced sugar or fat taxes, as well as discounts and tax rebates on vegetables," he said.

The planned sugar tax in 2017 would have brought €15-17 million a year into the Estonian state budget, he estimated.

"In Hungary, a so-called junk food tax was introduced in 2011, which is levied on many foods and beverages containing sugar, salt, caffeine or carbohydrates. In 2019, receipts of that tax accounted for 0.3 percent of the state's tax revenue in Hungary, which in Estonia's case would mean €30 million per year," Piirits said

In 2018, Estonia exempted employee health and fitness expenses up to €400 per year from the fringe benefit tax, which has increased employers' contribution to employees' health.

"In 2019, one in 16 companies took advantage of this opportunity and on average they financed €131 in health and fitness expenses per employee. The role of employers could be further increased, for example by expanding this scheme," said Piirits. 

The Foresight Center is a think tank at the chancellery of the Estonian parliament; its tasks include analyzing long-term developments in the society, identifying new trends and development avenues, and drafting development scenarios.

In 2021, one of the themes of its research is a future-proof tax structure, which looks for ways to cover costs in an ageing society and the possibilities for changing the tax system over the next 15 years. 


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Editor: Helen Wright

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