Latvia temporarily cuts own excise duty on spirits by 15 percent

Alcohol for sale in Valka, on the Latvian-Estonian border
Alcohol for sale in Valka, on the Latvian-Estonian border Source: ERR

Following the slashing of excise duties by 25 percent on beers, ciders and strong alcohol which came into effect in Estonia at the beginning of the month, Latvia has responded with the 15 percent cut of its own, as previously promised and to come into effect on Aug. 1.

Arguments in favor of cutting Estonia's duties, which had seen successive waves of excise duty hikes, were mostly concerned with halting the cross-border alcohol trade which had seen Estonian, and even Finnish, customers heading to Latvian border towns such as Valka to stock up on drink, thus hemorrhaging Estonian tax receipts as well.

Latvian Prime Minister Krišjānis Kariņš (Unity) said on the eve of the Estonian law coming into effect that it was not how neighbors should behave towards one another, citing damage to its own alcohol retail sector. At the same time, his Estonian counterpart Jüri Ratas (Centre) said that an excise duty war was neither Estonia's aim nor its intention.

The Saeima, the Latvian parliament, passed the amendments to the excise duty law, proposed by MP Jānis Dombrava (National Alliance) on Monday, by 51 votes in favor to 31 against, BNS reports.

The reduced rate is at present set to be temporary, running only until February 29 2020 (a leap year).

The Latvian finance ministry projected the effect on state budget arising from the Estonian law to be €92 million, and recommended cutting excise tax on strong alcohol by at least 15 percent in order to offset said effects. The ministry said it expects the tax cut to reduce the negative fiscal impact to €32 million.

While the Estonian cuts affected beers and ciders (but not wines) as well as spirits, the Latvian amendments are confined to the latter.

Mārtiņš Bondars, chairman of the Saeima budget and finance committee, told the media earlier that lawmakers might make further decisions on excise duties, in relation to the state budget, at the end of February 2020, but this depended on future developments in Estonia. Bondars also stated a desire to avoid an excise duty "war".

Newly-installed Latvian President Egils Levits, whose inauguration ceremony was on Monday, will visit Estonia Wednesday as one of his first official tasks, meeting both his Estonian counterpart Kersti Kaljulaid, as well as Prime Minister Ratas.

Editor: Andrew Whyte

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