The Impact Assessment of the Draft Proposal to Raise Excise Taxes Has Significant Deficiencies
The Ministry of Finance plans to significantly increase alcohol, tobacco, and gasoline excise taxes over the next four years to generate additional revenue for the state budget. The Chamber made a proposal to the ministry to cancel the additional excise tax increases planned for July 1, 2025, and to further assess the impact of the proposed excise tax increases on cross-border trade, taxpayers, and businesses in conjunction with other tax changes before deciding on subsequent increases.
Additional Increase in Alcohol Excise Tax in 2025 and 2026
The draft proposes to advance the 5% alcohol excise tax increase originally planned for 2026 to take effect on July 1, 2025. This means the alcohol excise tax will rise by a total of 10% in 2025. Additionally, the draft foresees increasing the alcohol excise tax by 10% in 2026, instead of the previously decided 5%.
The Chamber informed the ministry that it opposes the 5% alcohol excise tax increase on July 1, 2025, and the additional 5% in January 2026. The Chamber notes that the explanatory memorandum does not provide a sufficiently high-quality impact assessment to conclude that the additional alcohol excise tax increase will bring, for example, an additional €22 million in revenue to the state budget in 2026. Considering high inflation, upcoming tax increases (including the VAT hike), and the impact of cross-border trade, the Chamber believes that it is not reasonable to raise excise taxes at the pace proposed in the draft. The Chamber highlighted that the expected revenues from the excise tax increase implemented in 2023 have not materialized, as alcohol excise tax revenues in the first seven months of this year have fallen by approximately €18 million compared to the same period last year.
Impact Assessment is Insufficient
The Chamber requested that the Ministry of Finance further evaluate the draft’s impact on cross-border trade, the spread of illicit alcohol and tobacco products, and the forecasted tax revenues. Given the planned rapid and substantial excise tax increases, for example, alcohol excise taxes in Estonia and Latvia will differ significantly. According to the plan, Estonia's beer excise tax will rise to €17.83, while Latvia's will be €9.8 after their own excise hikes. The Chamber finds it unclear why the explanatory memorandum concludes that the impact of cross-border trade on tax revenues from excise increases will be minor, especially since the memorandum notes that the excise tax increase planned for July 2025, combined with the VAT hike during the summer vacation season, could lead to a sharp rise in cross-border trade. It also states that previous excise tax increases have led to a decline in tourist purchases, particularly in the sale of light alcohol.
Furthermore, the explanatory memorandum does not include calculations or a clear rationale for the projected €22 million positive impact of the alcohol excise tax on the 2026 budget. The same factors are said to lead to a decrease in excise revenue in 2025. There is also no analysis in the memorandum on how the gasoline excise tax increase will affect gasoline prices in light of the European Union's Renewable Energy Directive. Additionally, there is a lack of analysis on the combined effects of the proposed increases in alcohol, tobacco, and gasoline excise taxes on the economy and businesses.
The Chamber's Position
The Chamber believes that the impact assessment of the draft proposal needs significant improvement, and only after a thorough impact analysis can it be determined whether and by how much it is reasonable to raise excise taxes. If the state's revenues do not increase or even decrease as a result of the changes, there is no point in amending the law. The Chamber proposed canceling the excise tax increases planned for July 1, 2025, and conducting a more detailed analysis in the explanatory memorandum on whether and to what extent excise taxes should be raised in the years 2026 to 2028. Additionally, the Chamber suggested halting the processing of the draft and continuing discussions on excise tax increases with stakeholders after additional analyses are conducted in 2025.