Estonia’s incoming government is considering increasing the excise duties on alcohol and tobacco, according to a report by Postimees. While the exact amount of the proposed increase has not been disclosed by the politicians, it has been agreed among coalition partners that there will be a slow yearly growth in excise duties. The Finance Minister-designate of the Reform Party, Mart Vorklaev, has stated that the taxation of health-related risk-taking behavior will continue, but efforts will be made to avoid an increase in cross-border trade. The proposed tax changes are expected to be introduced in the Riigikogu during the spring session, with a six-month notice period before they take effect.
Annual Increase in Excise Duties
There have been discussions about implementing an annual 5-percent increase in excise duties on alcohol and tobacco. Sven Sulga, the sales manager of Distillery Moe OU, has expressed concerns about the potential impact of such an increase. He has pointed out that the difference in excise duties between Estonia and Latvia is currently small, and if Latvia does not increase its duty rate, people might not go to Latvia to buy alcohol in the first year. However, they may start doing so in subsequent years. Sulga also believes that people might choose to buy alcohol from Latvia out of spite due to the incoming taxes.
Concerns about Consumer Impact
Kristina Mustonen, the CEO of Maxima Estonia, has raised concerns about the impact of excise duty increases on consumers. She has noted that with every tax increase, including in excise duty rates, the final consumer is the one who suffers the most as their purchasing power decreases. Mustonen has also highlighted the potential risk of Estonian taxpayers choosing to buy goods from neighboring countries where they can be obtained at a cheaper price, thus affecting the Estonian economy. She questions how the state plans to avoid such a scenario, particularly for products subject to high excise duties.
Impact on Craft Drink Producers
Sven Sulga, the sales manager of Distillery Moe OU, has also expressed concerns about the impact of excise duty increases on craft drink producers. He has explained that taxes already account for a significant portion of the price of a bottle of strong alcohol. For example, a 0.5-liter bottle of vodka costs 6.5 euros, but after deducting VAT and excise duty, only 1.75 euros are left for production, transport, and store margin. Sulga believes that not all craft drink producers will be able to survive such tax increases, and the VAT increase will also have an impact on their businesses.
Monitoring Neighboring States’ Tax Rates
Mart Vorklaev, the Finance Minister-designate of the Reform Party, has stated that the Estonian government will monitor the tax rates of neighboring states to prevent cross-border trade. This indicates that the government is aware of the potential impact of excise duty increases on consumer behavior and trade patterns. Vorklaev has also emphasized the importance of providing a six-month notice period before the tax changes take effect, which shows an intention to ensure transparency and predictability for businesses and consumers alike.
Conclusion
In conclusion, Estonia’s incoming government is planning an annual price increase for alcohol and tobacco, although the specific rates have not yet been disclosed. The proposed increase is part of the government’s strategy to tax health-related risk-taking behavior while avoiding cross-border trade. However, stakeholders have expressed concerns about the potential impact on the alcohol and tobacco industry, consumers, and the economy. The government will need to carefully consider the implications and find a balance between increasing excise duties and minimizing negative consequences. Close monitoring of neighboring states’ tax rates and possible solutions, such as supporting local producers, may be necessary. The final rates and their implementation will be closely watched by all stakeholders in Estonia and beyond.