Tax inflows on target, excise duty receipts lower than projected in 2018

As alcohol excise levels remain high in Estonia, cross-border trade with Latvia continues to flourish, leading to drops in excise duty receipts.
As alcohol excise levels remain high in Estonia, cross-border trade with Latvia continues to flourish, leading to drops in excise duty receipts. Source: Priit Luts/ERR

While the inflow of tax money into the Estonian state budget in 2018 was consistent with the Ministry of Finance's expectations, receipts of excise duty on alcohol, tobacco and fuel, meanwhile, remained below the budgeted amount.

The sum total of tax receipts in 2018 exceeded the budgeted amount by 0.4%, growing 8.7% compared to the previous year. In December 2018, tax inflows totalled €695.5 million, or 0.4% less that in the same month in 2017, the Ministry of Finance said.

The inflow of social tax amounted to €3.06 billion in 2018, exceeding the budgeted amount by 3.9%. The €115 million surplus is attributable primarily to growth in employment and average wages, which was swifter than projected.

Average wages grew 6.7% last year, and the number of people employed in the workforce increased 2.3%. The share of workers among Estonia's working-age population grew to 59.6% by the end of the year, marking a long-term high. Social tax receipts totalled €272 million in December, up 7.6% on year.

Personal income tax was paid in the amount of €311.1 million, exceeding the budgeted amount by 66.2% and marking a surplus of €124 million. This surplus was attributable primarily due to the basic exemption being utilised in the amount of €72 million euros, which was less than projected.

Roughly €13 million more additional income tax was paid than forecast, whereas income tax refunds totalled €8 million less than projected. The rest of the surplus resulted from sharper than projected growth in employment and average wages. In December 2018, personal income tax receipts totalled €35.4 million, down 16.6% on year.

Corporate income tax was paid in the amount of €517.9 million, accounting for 91.7% of the budgeted amount. Last December, corporate income tax receipts amounted to €40.9 million, down 0.5% on year.

€2.33 billion, or 99.8% of the budgeted amount, was received in VAT, marking a 8.5% increase compared to the previous year. VAT receipts in December totalled €225.6 million, up 5.2%, or €11 million, on year. Compared to the first six months of the year, VAT receipts decelerated in December.

Total excise duty receipts were up 2.2% on year in 2018, but receipts for December were down 22.9% on year. Growth in tax inflow was held back in December by the fact that in January 2019, excise duty rates were not increased as they were in January 2018, thus there was no need to stock up on goods prior to the hike.

Alcohol excise receipts €101 million below budget

Alcohol excise duty receipts totalled 4.6%, or €10 million euros more than during the previous year, but still fell 32.1%, or €101 million, below budget. The main reason for the lower than expected receipts was the planned elimination of excise duties in 2019, which came to focus during the handling of the 2018 budget.

As a planned excise duty hike was cancelled following the adoption of the state budget, alcohol producers and sellers did not stock up on alcohol prior to the new year; however, the prognosis on which the state budget was based had accounted for it. Thus, the alcohol excise duty collected was lower by €40 million than projected. In terms of alcohol excise duty, the previous year was complicated, as tax receipts were affected by several amendments to legislation which had not been accounted for during the budget prognosis. Several changes also occurred in consumer behavior, consumption habits and cross-border trade.

Fuel excise duty receipts €38 million short

Total fuel excise duty receipts were higher by 1.5% or €8 million compared to the previous year, but less than the budgeted amount by 6.5%, or €38 million. Of this, over one half, or €20 million, was the result of stocking up on petrol at the end of 2017 prior to the hike in January 2018.

In 2018, consumption of diesel fuel grew 8% on year, which was slightly less than projected. Fuel consumption was affected by price changes on the global oil market, which also had an effect on the cross-border trade of fuel with Latvia and Lithuania.

The sum total of tobacco excise duty collected in 2018 exceeded the previous year's tax receipts by 1.4%, or €3 million, but still fell 10.5%, or €24 million, short of the budgeted amount. The main difference compared to the expectations is again related to stocking up on goods before tax hike.

Beginning January 2018, the excise duty rate on cigarettes was increased 10%, but retailers only stocked up on tobacco products to a minimal extent, for nearly €15 million less than projected. Cigarette consumption is also on the downturn — last year, 6.9% fewer cigarettes were declared compared to 2017, and the decrease will be further expedited by display and sales limitations that will enter into force this year.


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Editor: Aili Vahtla

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