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Incorrect border trade estimate reduces excise duty receipts by €23 million

Shoppers at an Alko1000 store just on the Latvian side of the border of the dual border town of Valga-Valka.
Shoppers at an Alko1000 store just on the Latvian side of the border of the dual border town of Valga-Valka. Source: (ERR)

Alcohol excise duty receipts totaled €55 million less than planned last year, €23 million of which was the result of an incorrect assessment of border trade and consumption, analysts at the Fiscal Policy Department of the Ministry of Finance said.

"In 2017, alcohol excise duty receipts amounted to 80.2 percent of the receipts planned for the whole year, which means that €55 million less receipts were paid into state coffers than expected in the budget adopted by the Riigikogu at the end of 2016," department analyst Kadri Klaus and director Sven Kirsipuu said on the ministry's blog. "This includes about €23 million less receipts as a result of border trade and consumption than expected."

According to the analysts, the receipts declined as a result of the stockpiling of alcohol that diverged from forecasts — alcohol was consumed much later than it was purchased.

The stockpiling of alcohol by companies will not have a large effect on consumption, which will still follow the regular dynamic and seasonality, the analysts said, adding that retailers might still keep their prices lower for longer periods or have sales, as a result of which the impact of excise duty hikes might kick in later.

"Budget receipts in 2017 were influenced by stockpiling at a different time than forecast, both at the start as well as at the end of last year," the ministry officials said. "As the government that assumed office in November 2016 postponed the January 2017 excise hike until February, stockpiling should have been postponed as well."

Advance notice was given quite late, they noted, which is why companies started stockpiling alcohol earlier. Compared to forecasts, nearly €22 million worth of alcohol was stockpiled in November and December 2016, and thus 2017 excise duty receipts declined by the same amount.

Excise duty receipts were equally as influenced by the government's decision to halve the excise duty hike that went into effect on Feb. 1, 2018.

The analysts also noted that the impact of border trade was in reality larger than €23 million, as this figure only takes into account the incorrect forecast. Last summer, the analysts estimated that the excise duty deficit would total €34 million, or €54 million with VAT.

Editor: Aili Vahtla

Source: BNS

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