Analysis: Raising alcohol excise duty would decrease Estonia's revenue

Alcoholic drinks on sale at a gas station. Image is illustrative.
Alcoholic drinks on sale at a gas station. Image is illustrative. Source: (Postimees/Scanpix)

While no such correlation applies to excise duty on tobacco, increasing the excise duty on alcohol would reduce Estonia's excise revenue, it appears from the results of an analysis commissioned by the Ministry of Finance and conducted by PricewaterhouseCoopers Advisors (PwC).

PwC's analysis highlights that when making changes to excise duty policy, the state has to communicate more clearly the purpose thereof. The state also needs an overview of the sectors and consumers most affected by these changes as well as needs to ascertain whether the effect on this group is in line with the goals of the corresponding policy.

From 2017 to 2017, excise duty on beer grew 186%, while the excise duty on low-alcohol beverages increased 144% and that on strong alcoholic beverages increased 68%. Based on the prognosis by PwC, increasing excise duties on beer, cider and strong alcoholic beverages would lower revenue from said levies. Raising the excise duty on wine would likely also decrease tax revenue, however increasing excise duty on cigarettes could still result in revenue growth.

While the revenue of importers of strong alcohol and beer has grown, that of importers of wine and cider have been in decline since 2014. Importers of tobacco products, meanwhile, have seen their revenue grow consistently since 2014, although their losses totalled €100,000 in 2017.

The analysis points out that from 2010 to 2017, the number of alcohol producers grew from 19 to 72, with small breweries accounting for the biggest share of newcomers. Alcohol producers have also grown their exports, although investments, revenue and profits have all seen a decline from 2015 figures.

Liquor consumption down, beer consumption up

Consumption of strong alcoholic beverages has remained in a steady decline since 2010. While the consumption of beer and low-alcohol beverages exhibited a downward trend through 2015, it has since reversed. Wine consumption, meanwhile, grew an average of 5.4% per year from 2010-2017.

The revenue of non-specialised stores grew 4% per year on average. As retail alcohol sales are in a notable decline, however, and alcohol sales account for one fifth of stores' revenue, a significant impact resulting from the current excise duty policy is likely to be seen this year. 

The analysis indicates that liquor stores have been significantly affected by the excise duty policy, operating at a loss for the first time in 2015 and 2017, or during the period in which the excise duty hikes entered into force, kick-starting cross-border trade. 

The analysis commissioned by the Ministry of Finance analyses the risks, opportunities and impact on the business environment posed by excise duty policy in the conditions of cross-border trade. It provides an in-depth overview of the economic effect of excise duty policy in recent years and also allows for the estimation of the economic impact of future policies. The paper also offers a sectoral breakdown of the effects of the excise duty policy and cross-border trade on employment and businesses' economic performance.

Editor: Aili Vahtla

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