Ratas: €89 million in excise duty left unpaid due to cross-border trade ({{commentsTotal}})

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

Responding to questions by MPs in the Riigikogu on Monday, Prime Minister Jüri Ratas (Centre) said that altogether €89 million in excise duty with VAT will be left unpaid into the Estonian state budget this year as a result of cross-border trade.

Interpellators Maris Lauri, Urve Tiidus, Arto Aas, Aivar Sõerd, Meelis Malberg, Yoko Alender, Heidy Purga, Madis Milling, Kalle Laanet, Urmas Kruuse, Igor Gräzin, Anne Sulling, Johannes Kert, Laine Randjärv, Peep Aru, Ants Laaneots, Liina Kersna, Jüri Jaanson, Keit Pentus-Rosimannus, Terje Trei and Aivar Surva referred to the circumstance that this year's tax receipts are significantly weaker than planned and that payments to the state budget will be smaller than planned. The interpellators wanted to know how big Estonia's loss in tax income is in relation to increased excise duties and cross-border trade.

Ratas said that it has been rather typical that the rates of excise duty on alcohol are higher in Estonia than in Latvia. "Currently, the excise duty on beer is 149% higher in Estonia than in Latvia, but I'd emphasise that through the years, the excise duty on beer has been higher in Estonia than in Latvia," he said, adding that the excise duty on hard liquor is 50% higher in Estonia than in Latvia.

The prime minister explained that the government on 26 September unanimously adopted and initiated in the Riigikogu a bill of amendments to the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act and other laws cancelling the alcohol excise duty hikes planned for 2019 and 2020. When the amendments enter into force, the difference of excise duty rates will decrease to 109% in 2020, while the excise duty difference on hard liquor may be reduced to 24% if Latvia increases the excise duty on hard liquor as planned in the next two years and Estonia does not.

Cross-border trade to north affected as well

Ratas noted that the calculation of the tax receipts not received due to border trade is theoretical and is based on the presumption that excise goods that were bought elsewhere would otherwise have been bought in Estonia. At the same time, the amounts bought from Latvia are great first and foremost due to low prices and these amounts would be smaller in the event of higher prices. When it comes to alcohol, border trade encompasses activities on the northern and southern border. Border trade on the southern border has increased, while border trade on the northern border has decreased, and Estonia's tax revenue is therefore decreasing due to activities on both borders.

Purchases by Finnish customers make up the majority of the cross-border activity on the northern border, but purchases have decreased by approximately 23% compared to the previous year. Latvian cross-border trade makes up 24.7% of litres sold legally in Estonia along with the purchases of Estonians. According to Ratas, Latvian border sales also includes purchases by Finns. and it is likely that a large part of the amount of purchases that have not been made on Estonia's northern border have instead been made in Latvia.

"Assuming as a basis the amounts of Latvian border sale, we estimate the excise duty not received this year due to cross-border trade to be approximately €66 million, and €89 million euros with VAT," the prime minister said.

The price difference of tobacco products with Latvia is not extensive, which is why the volume of border trade is relatively modest. "We estimate the excise duty not received this year due to the cross-border trade of tobacco to be €5.4 million, or €6.8 million with VAT," he said. "A surging increase in border trade in the fuel sector has been taking place since 2016. Fueling up in Lithuania and Latvia increased significantly, and as a result, the state of Estonia in 2018 will not receive €33.3 million in excise duty."

Ratas admitted that ambition and expectations turned out to be too high. He said that the analysis of the possible increase in excise duty rates and the prognosis made on the basis thereof were not comprehensive. As a result, it can be seen that the actual impact has been slightly different in the market situation.

"The government coalition has cancelled the previously legalised excise duty hikes," the prime minister said. "The Ministry of Finance has corrected budget receipt forecasts and, as is known, the government cut the excise duty rate hikes on hard liquor and beer planned at the beginning of this year in half."

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Editor: Aili Vahtla



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