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Estonia to receive €80 million less than expected in alcohol tax in 2018

Alcohol for sale at an Alko1000 store in the border town of Valka.
Alcohol for sale at an Alko1000 store in the border town of Valka. Source: (Postimees/Scanpix)

Alcohol excise duty will bring in some €80 million less than estimated by the Ministry of Finance to Estonian state coffers next year, says the Estonian Institute of Economic Research (EKI), acording to whom this year's revenues from the duty are smaller in absolute terms despite a steep rate hike.

"The price difference with products sold in Latvia caused by increases in the alcohol excise duty has given rise to cross-border trade," EKI director Marje Josing said in a press release. "Cross-border trade has a major impact on the inflow of excise duty and VAT into the state budget."

In recent years, Estonia has increased the alcohol excise duty at a more rapid rate than before. According to the Estonian Chamber of Commerce and Industry, strong liquor in Estonia costs almost double the price in stores on the Latvian side of the border, and a 24-pack of beer 2.5 times more.

As a result of cross-border trade, receipts of alcohol excise duty in 2017 will fall significantly short of the target set out in Estonia's state budget, according to EKI, who noted that this will be the case despite the fact that the Ministry of Finance already cut its estimate concerning the inflow of revenue under that item by €38 million.

"Despite the increase in the rate of the excise duty, inflow of money from the tax in absolute terms has been lower than in previous years," Josing said. "Compared to 2016, 16 percent less tax revenue will flow into the state budget of 2017."

Mait Palts, director general of the Estonian Chamber of Commerce and Industry, said that impacts from the steep increases in the rates of the alcohol excise duty introduced at a rapid pace affect not only the alcohol market, but carry over into other sectors of the economy as well.

"With the new increase in the alcohol excise duty planned for next year, the difference between Estonian and Finnish prices will narrow significantly, as a result of which the waning of alcohol export across our northern border will also have a growing impact on tax inflow, in turn affecting the tourism and industral sectors," Palts noted.

"The state wishes to reduce the consumption of alcohol by raising the excise duty," he continued. "While this is a justified goal, it has become clear by now that it is first and foremost the state budget that will be hit significantly harder than estimated as a result of the increase in the alcohol excise duty, whereas consumption will not decrease." He said that based on the findings of the survey, the government should consider forgoing the next planned hike in the excise duty in 2018 to stabilize fiscal receipts and not give an additional boost to cross-border trade.

"Instead, one should focus on preventive activities, offering children and young people more opportunities when it comes to hobbies and non-formal learning, raising awareness and changing society's attitudes to reduce the consumption of alcohol," Palts said. "Only in such way can it be ensured that reduction in consumption is real and happens on a permanent basis."

The survey on trends on the Estonian alcohol market in connection with the increases in the excise duty was commissioned by the Estonian Chamber of Commerce and Industry and conducted by EKI.

Editor: Aili Vahtla

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