The Riigikogu Finance Committee has introduced an amendment to the draft Alcohol, Tobacco, Fuel and Electricity Excise Duty Act for its second reading, canceling the planned 5 percent increase in alcohol excise duty scheduled for July 2025.

"The goal is to ensure that the state does not lose revenue due to potential growth in cross-border trade or the black market," said Annely Akkermann (Reform), chair of the Finance Committee.

Andrei Korobeinik (Center), vice chair of the committee, expressed concern that the impact of cross-border trade on tax revenue may have been underestimated by the government.

"Even a modest increase in excise rates could make alcohol sold in Estonia significantly more expensive compared to neighboring countries. In such a scenario, Latvia could become the biggest beneficiary of the coalition's alcohol policy. This would mean not only a loss of tax revenue for Estonia but also economic and social setbacks," Korobeinik said.

Additionally, Akkermann noted that the Finance Committee decided, at the suggestion of the Ministry of Culture, to exclude a provision from the draft law that would have overly restricted the activities of the Cultural Endowment of Estonia. This provision would have allocated only 0.5 percent of alcohol and tobacco excise revenue to the sub-fund for physical culture and sports.

"As a result, while the resources of the seven sub-funds have grown roughly in line with the rising cost of living due to increased gambling tax revenue, the funds available for the physical culture and sports sub-fund, which come from alcohol and tobacco excise revenue, have seen little or no growth," Akkermann explained.

The draft law proposes increases in alcohol, tobacco and gasoline excise duties for the years 2025-2028. Five percent increases in alcohol and tobacco excise duties are already planned for January 2025 and 2026 under the excise act.

As a result of the amendments, the excise duty on tobacco products and alcohol will rise by a total of 10 percent in 2025 and 2026 for the former and 2026 for the latter. According to the draft, excise duties on alcohol and tobacco will also increase by 5 percent annually in both 2027 and 2028.

The excise duty on unleaded gasoline and other equivalently taxed fuels, including aviation gasoline, will increase by 5 percent per year over the next four years. The 2025 increase will take effect on July 1, while increases for 2026, 2027 and 2028 will start on May 1.

The excise duty on gasoline has remained unchanged in Estonia since 2018.

The second reading of the government-initiated Alcohol, Tobacco, Fuel and Electricity Excise Duty Act is scheduled for the December 4 plenary session of the Riigikogu.

The last time Estonia's alcohol excise duty was considerably higher than in Latvia was the second half of the 2010s, when a considerable number of people in Estonia regularly commuted to the border to stock up on cheap alcohol.

In 2017, cross-border alcohol trade on the Estonian-Latvian border accounted for 13 percent of Latvia's alcohol excise duty revenue, data from the Latvian State Revenue Service (VID) showed, while Estonia lost dozens of millions in tax revenue 2017-2019.

The relative importance of alcohol bought in Latvia dropped sharply (by 33 percent) when Estonia cut its excise duty rate in July 2019.

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