Prime minister says no further excise cuts as Latvia retaliates

Prime Minister Jüri Ratas (Centre).
Prime Minister Jüri Ratas (Centre). Source: Aurelia Minev/ERR

Prime Minister Jüri Ratas (Centre) says no further alcohol excise duty rate cuts are on the table, following an announcement that Latvia may cut its own rate on strong alcohol by 15 percent.

A bill slashing alcohol excise duties passed in the Riigikogu recently means that rates will be cut by 25 percent from July 1.

The move was ostensibly aimed at curbing cross-border alcohol trade which saw many Estonian customers, and even Finnish ones, traveling to Latvian border towns like Valka and Ainaži to stock up on drink.

"With reference to cross-border trade, we have made our decision regarding both light as well as strong alcohol ‒ minus 25 percent from July 1," Ratas said on ERR current affairs show "Aktuaalne kaamera" Wednesday evening.

"In contrast, we are seeing that the new Finnish government is to increase its excise duty on alcohol. All states decide these issues individually and autonomously," the prime minister said.

As to whether Estonia could make another decision to lower the rates even further, the Estonian premier said that the current government is not prepared to do that.

"Estonia will not go along with this 'race' in lowering excise duty rates on alcohol," he said.

The budget and finance committee at the Latvian parliament, the X, decided on Wednesday to include a bill to reduce excise tax on strong alcohol on the agenda of the parliament's next meeting, scheduled for Thursday. The committee also requested a fast-track procedure for the bill, so it can be adopted in two readings, BNS reports.

The committee's chairman, Mārtiņš Bondars (LA), said that Estonia has reduced its excise tax on alcohol steeply, which is affecting employment in Latvia's border areas, as well budget revenue, thus the decision requires rapid countermeasures, the "Aktuaalne Kaamera" newscast reported.

Latvian Prime Minister Krišjānis Kariņš (Unity) said that Estonia's cutting of its excise duty rates will deal Latvia a notable blow.

"The aim should be for both states to harmonize their excise duty rates so that losses are kept to a minimum. What Estonians have done now, however... this is not how good neighbors behave towards each other. This directly reduces our budget revenue. We are currently drafting the budget of the next year as well as that of the coming three years. A €100-million gap is more than we are allocating for the wages of health professionals this year. It's a lot of money for us," Karins said in an interview with the Panorama morning TV show on the Latvian public broadcaster's channel.

Pursuant to the bill, excise duty rates on strong alcohol would be lowered by 15 percent in Latvia from July 1, if it passed.

Price comparison

The "Aktuaalne Kaamera" newscast compared the share of excise duty in the price of vodka in Estonia and Latvia.

Currently, of the price for a half-liter bottle of vodka, €4.4 of excise duty inclusive of VAT is paid in Latvia, while in Estonia the amount is €6.2 euros, a nearly €2 difference.

If Estonia and Latvia both lower their excise duty rates from July 1, the excise duty inclusive of VAT paid for a half-liter bottle of vodka will total €3.8 euros in Latvia and €4.5 in Estonia, narrowing the difference to €0.76.

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Editor: Andrew Whyte

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