At its Cabinet meeting on Monday, the Estonian government reached an agreement in principle on the 2020-2023 state budget strategy and the 2020 state budget bill, both of which have been added to the government's agenda for Thursday.

As part of its negotiations on the next state budget strategy and the 2020 state budget, the government decided to reduce the alcohol excise duty on both spirits and low alcohol by volume (ABV) beverages by 25 percent as of July 1 in order to curb cross-border trade on Estonia's southern border.

Importers: Finnish purchases to bounce back too

A 25 percent cut in alcohol excise duty in Estonia has the potential to put an end to cross-border trade on the Estonian-Latvian border, but may likely also see alcohol purchases by Finns bounce back as well, Estonian Association of Alcohol Producers and Alcohol Importers managing director Triin Kutberg said in response to the government's decision on Monday.

"We'd like to acknowledge the government on this just and bold lowering of the excise duty," Kutberg told BNS.

"When the 25 percent reduction in excise duty actually takes effect, it has the potential to put an end to cross-border trade on the Latvian border, which means consumption by Estonians shifting back to Estonia in terms of taxes as well," she continued. "This change will also bring back to Estonia a large portion of purchases by Finns."

Tallink to reduce alcohol prices on its ships

Estonian shipper Tallink will cut the prices of alcohol on its ships as soon as the amendment lowering the alcohol excise duty takes effect, Tallink Grupp CEO Paavo Nõgene said on Monday.

"Tallink Grupp commends the government of the Republic of Estonia for making this decision," Nõgene said. "Should the Riigikogu pass the law, Tallink will commit to lowering prices immediately, effective July 1, 2019, beginning with the first departure of the day."

Liviko: Duty cut a bold move

Janek Kalvi, the CEO of Estonian alcoholic beverages producer AS Liviko, described the government's decision as an unprecedentedly bold and radical move that would put an end to cross-border trade.

"Personally, I would not have expected such resolve from the government," Kalvi told BNS.

"I have always said that, in order to put an end to cross-border trade, the rates for strong and low-alcohol beverages alike have to be lowered by about 20-25 percent, and I have always said that I do not consider it very feasible politically. It looks like this government has decided to pass decisions that aren't of the easy sort as well."

According to Kalvi, when the planned measures take effect, the government will "definitely" achieve its goal to end cross-border trade on Estonia's Latvian border and restore trade to Finland in the north. The planned reduction, he noted, will equalize excise duty rates in Estonia and Latvia.

Effect won't be immediate

The Liviko CEO described the decision to slash the duty as soon as July 1 as a challenge in its own right, as the reduction would be very steep and come at very short notice. The effects, however, would only be apparent after some time.

"You can't think that prices will reach Latvian levels beginning in July," Kalvi explained. "You need to take into account that traders have their warehouses full of stocks which contain a higher excise duty as a price component. You shouldn't think that traders will be prepared to absorb hundreds of thousands of euros in costs. Although some businesses here have said already that prices will drop beginning on the same day, that is not realistic."

The transition could take anywhere from two to four months, and in some cases even longer, he said.

Regarding alcohol purchases by Finns, Kalvi highlighted that duty increases in Finland have been cosmetic thus far, increasing the duty by 1-2 percentage points. In Estonia, meanwhile, the duty has been hiked by 15 percent at a time.

"We've seen certain recovery, but it has been subdued," he admitted, adding that cross-border trade on Estonia's northern border could be expected now as well.

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