Border trade damages Estonian entrepreneurs
For the third time, the Chamber of Commerce commissioned a study on border trade from the Estonian Institute of Economic Research, which shows that in 2018 the share of buyers of alcoholic beverages from Latvia remained at the same level as in 2017, but the volume of purchases increased. There has been a significant increase in the purchase of other goods in addition to alcohol.
Specialized border trade affects fair competition
Marje Josing, Director of the Estonian Institute of Economic Research: "Normal cross-border trade is not a problem, but rather promotes competition and consumer purchasing opportunities. Large-scale purchasing of excise goods from another country is not normal and does not have to be accepted. Border trade cannot be eliminated, but it can be reduced through various activities and prices are the most important factor here. If it is politically decided to lower the excise tax in Estonia, then it should be accompanied by an analysis and disclosure of retail margins (because excise duties are only part of the pricing). Otherwise, we may find ourselves in a situation where retail prices will not change despite tax cuts and purchases will still be made in Latvia. It is very important to continue with all other measures to limit alcohol consumption, so that cheaper retail prices in Estonia would not lead to an increase in consumption, but that major purchases from Latvia would be replaced by the usual moderate purchase in the domestic market."
In 2018, the share of people who bought alcohol from Latvia remained at the same level as in 2017, being 35%. Percentage of alcohol purchasers traveling through or to Latvia increased from 21% in 2017 to 25% and the proportion of those who specifically bought alcohol decreased from 18% to 14% in a year. People who bought alcohol from Latvia bought foodstuffs, motor fuel, clothing and footwear and other goods more than before. On average, EUR 648 a year was spent on purchasing goods from Latvia, of which EUR 329 a year was spent on purchasing alcohol. People who specifically buy alcohol purchase goods for an average of EUR 1097 a year.
Loss of revenue for the state budget was nearly EUR 100 million
According to Marko Udras, Head of the Policy and Legal Department of the Chamber of Commerce and Industry, in addition to the collection of excise duty on alcohol, attention must also be paid to VAT, which is not received from other products and services that are increasingly bought in Latvia. "Artificially created specialized border trade influences fair competition and attracts the consumer to buy other commodity groups which price differences would otherwise not attract the buyer at the border," and added: "If every buyer from Estonian leaves one monthly salary in Latvia, it will have a strong impact on Estonian entrepreneurs and the economy in the long term."
At the beginning of 2018, entrepreneurs estimated that loss of excise tax revenue for the state budget will be about EUR 110 million. "The difference between the estimated excise tax revenue and actual receipts was close to 100 million. In case of such figures, every person has the question of how such a deficit was covered in budget revenue, and what will be done better in the future to avoid such mistakes," said Udras.
Buying from Latvia is more organized
The survey showed that buying from Latvia has become more organized – people no longer come to explore, they buy purposefully and also for other people. By 2019, participants in the survey predicted a decrease in purchasing activity towards Latvia, but 29% of respondents plan to buy alcohol and 19% plan to buy foodstuffs and motor fuel.
For three years, the Estonian Institute of Economic Research has conducted a survey on the volume of Latvian border trade. The survey is based on the following sources of information: analysis of excise receipts in Estonia and Latvia, retail price surveys in Estonia and Latvia, expert interviews with producers and retailers, population survey, analysis of MTA data. In December 2018, the Estonian Institute of Economic Research conducted a border trade survey among Estonian residents. The survey was conducted online and by post, and a total of 1029 respondents aged 18-74 answered the questions. The distribution of respondents in socio-demographic groups is representative and corresponds to the socio-demographic distribution of the Estonian population.