Alcohol and tobacco excise duties increase rate should be known by summer
Estonia's incoming government coalition also wants to raise excise duties on tobacco and alcohol, starting in 2024. Exactly how much the price of a packet of cigarettes or a bottle of beer will rise as a result of the excise increase should become clear before the end of the Riigikogu's spring session.
Incoming Minister of Finance Mart Võrklaev (Reform) said, that tobacco excise duties will most likely continue to rise from the beginning of 2024 in line with similar increases seen in recent years.
"They will increase annually, but at a moderate rate. What the exact percentage will be, I'm not going to say at the moment. First we will sit down and go through it, and then we will definitely take into account the readiness or thoughts of the market players, or at least listen to them," said Võrklaev.
Alcohol excise duties were last increased in 2018. Excise duties on some types of alcohol were also reduced in 2019. According to Võrklaev, the plan is also to agree on a moderate rate of increase this time too. Raising both alcohol and tobacco excise duties is expected to raise an estimated €25-30 million per year for the Estonian state budget.
"As these excise rates have not yet been finalized, at the moment, this is still an estimate and so (the amount) could fluctuate. If it comes into force from 2024 for example, will any advanced purchases be made before that, in 2023? Then the impact of 2024 might be smaller. But, at the same time in 2025, the momentum will start to take things forward. We have to think a bit about what the percentage will be and then calculate the revenue and impact," Võrklaev said.
According to incoming Minister of Health and Labor Riina Sikkut (SDE), the desire to improve public health is also behind the approach to continue increasing tax on alcohol and tobacco.
According to data for 2021, the Estonian population consumed an average of 11.1 liters of absolute alcohol per adult (aged 15 and above), an increase of 2.3 percent on the year before.
"In 2018, we most likely reached a historic minimum of ten liters. The increase in recent years has been more than a liter. It is an indication that things are not really getting any better on their own," Sikkut said.
Sikkut also said that excise duties on both alcohol and tobacco would begin to increase every year, though at a slower rate.
"However, a concrete percentage has not been strictly agreed on, so it is the task of the finance minister to come to the government with a proposal. From a health perspective, it is not possible to raise excise duties to a level that would (completely) eliminate damage, which alcohol causes to health in society. Any increase in the excise duty rate is in line with health objectives, however there is no target level to reach for the time being."
Võrklaev added, that the plan is to bring the whole tax package, including the planned introduction of a new car tax, to the Riigikogu before the end of the spring session.
"With this tax policy we will still try to stick to the principle of letting the (affected) parties know what the changes are going to be, six months before the law comes into force," he said.
Both Sikkut and Võrklaev hinted at a desire to work with their Latvian counterparts when it comes to raising excise duties, so that the planned increases would be in line with ideas and approaches from across the border. This form of cooperation could help reduce the risk of a resurgence of cross-border trade.
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Editor: Michael Cole