Study: Alcohol Excise Received by State in 2018 will be 80 Million Less Than Planned by the State

The Estonian Institute of Economic Research researched the impact of the alcohol excise duty increase on the Estonian alcohol market. The Institute estimates that next year, approximately 80 million  euros less of alcohol excise duty will be received to the state budget than planned by the Ministry of Finance, and already this year, the tax receipt in absolute numbers has been lower than during earlier years.

“The price difference with the products sold in Latvia that is the result of increased alcohol excise duties, has boosted cross-border purchases. Therefore the border trade has a great impact on the receipt of the excise duty and value added tax to the state budget,” said Marje Josing, Director of the Institute while introducing the study.

During the recent years, the state has increased the alcohol excise duties to a larger extent than during previous years. As a result, strong alcohol is approximately twice and beer  case around 2.5 times more expensive than in the Latvian border stores.

In the opinion of the Estonian Institute of Economic Research, as a result of the cross-border commerce, the receipt of alcohol excise duty in 2017 will remain significantly lower than that planned in the state budget. That is despite of the fact that the Ministry of Finance has already corrected the estimate for the receipt of excise duties, decreasing it by 30 million euros.

“Despite the increase of the excise duty rate, the collection of excise duty in absolute numbers has remained lower than during previous years, as compared to the year 2016, the year 2017 will see a 16% lower collection of taxes into the state budget,” said Josing.

Mait Palts, Director General of the Estonian Chamber of Commerce and Industry said that the drastic and fast-paced increase of the alcohol excise duty has an impact not only on the alcohol market, but also other sectors. “In the context of the additional increase of the alcohol excise duty planned for next year, the difference between the Estonian and Finnish alcohol prices will significantly decrease, due to which the tax receipts will be increasingly influenced also by the alcohol exports from the Northern border and this has an additional impact on the tourism as well as industrial sector,” added Palts.

“With the increase of the alcohol excise duty, the state wishes to decrease alcohol consumption. The aim is reasoned, but by now it is clear that as a result of the increase of the alcohol excise duty, the state budget is the one to suffer the most, and consumption will not decrease,” said Palts. He added that in light of the results of the study, the state could consider waving the 2018 excise duty increase in order to stabilise receipts to the state budgets and not to fuel border trade.

“In order to achieve decreased levels of alcohol consumption, the focus should be rather on preventive action, offering children and youth possibilities for extracurricular activities, increasing awareness and changing social attitudes. This is the only way to ensure that decreased consumption is real and has a permanent effect,” emphasized Palts.

The Estonian Institute of Economic Research carried out the study “Trends on  the Estonian Alcohol Market in Relation to the Increase of the Excise Duties” by the order of the Estonian Chamber of Commerce and Industry.

Business organisations sent a relevant address to the Finance Committee of the Riigikogu, emphasising that in order to avoid significant decrease of the state’s tax revenue, damages to the exports and deterioration of the competitiveness of Estonian companies, the increase of the alcohol excise duty planned for the beginning of the year 2018 should be abandoned. The address was drawn up by the Estonian Chamber of Commerce and Industry, Estonian Employers’ Confederation, Estonian Traders Association, Estonian Food Association, Estonian Hotel and Restaurant Association, Estonian Small Traders Association, Estonian Breweries Association and Estonian Alcohol Producers and Importers Association.