Chamber to the Finance Committee: Tax Increases Should Not Be Rushed

The Chamber informed the Finance Committee of the Riigikogu that the planned increases in excise taxes on alcohol, tobacco products, and gasoline, scheduled for July 1, 2025, should be canceled. Before any increase in excise rates, a more thorough analysis should be conducted to assess whether and to what extent it is reasonable to raise these excise taxes in 2026 and subsequent years.

A bill in the Finance Committee of the Riigikogu aims to amend the Alcohol, Tobacco, Fuel, and Electricity Excise Act, along with other laws, to gradually raise excise taxes on alcohol, tobacco products, and gasoline from 2025 to 2028. According to the bill, these excise rates would increase by 5% on July 1, 2025. In 2026, alcohol and tobacco excise rates would rise by 10% at the beginning of the year, with gasoline increasing by 5%. In 2027-2028, the excise rates would continue to increase by 5% annually.

Excise Increases May Not Boost State Budget Revenues

We informed the Finance Committee that we support a solution where excise increases are known well in advance. However, we oppose the excise increases proposed in the bill, as its impact analysis is insufficient to determine whether and to what extent raising excise rates is reasonable.

The Chamber believes the explanatory memorandum fails to adequately consider the impact of excise increases on cross-border trade and illicit business, despite the fact that, according to the bill, Estonia’s excise rates would rise significantly above those in neighboring Latvia. According to business estimates, the state could lose €47 million in excise revenue over the next two years due to cross-border trade if the planned alcohol excise hike is implemented.

There are also doubts about whether the excise increases will generate additional revenue for the state budget. For instance, at the beginning of 2024, the alcohol excise rate was increased by 5%, with the state expecting an additional €12 million in annual revenue. However, this extra revenue has not materialized, as alcohol excise receipts have fallen by approximately €18 million in the first seven months of this year compared to the same period last year. The Ministry of Finance has noted that although the alcohol excise rate will rise by 5% in 2025, alcohol excise receipts are actually expected to decrease. However, in 2026, an increase of €22 million in excise revenue is anticipated.

Furthermore, the explanatory memorandum does not assess the combined impact of the planned excise increases for 2025-2028 with the already enacted, soon-to-be-enacted, and proposed tax changes.