Alcohol, Estonia, Financial Services, Legislation, Markets and Companies, Taxation

"The price difference with products sold in Latvia caused by increases in the alcohol excise duty has given rise to cross-border trade. Cross-border trade has a major impact on the inflow of excise duty and VAT into the state budget," the director of the Estonian Institute of Economic Research, Marje Josing, said in a press release.

In recent years Estonia has raised the alcohol excise duty at a faster rate than earlier. According to the Estonian Chamber of Commerce and Industry, strong alcohol here costs almost double the price in stores on the Latvian side of the border and a 24-pack of beer 2.5 times more.

As a result of cross-border trade, receipts of alcohol excise duty in 2017 will fall significantly short of the target set out in the state budget, according to the Institute of Economic Research. It said this is despite the fact that the Ministry of Finance already has cut its estimate concerning the inflow of revenue under that item by 38 million euros.

"Despite the increase in the rate of the excise duty, inflow of money from the tax in absolute terms has been lower than in previous years. Compared with 2016, 16% less tax revenue will flow into the state budget of 2017," Josing said.

The director general of the Chamber of Commerce and Industry, Mait Palts, said that impacts from the steep increases in the rates of the alcohol excise duty carried out at a rapid pace affect not only the alcohol market, but are carried over also to other sectors of the economy.

"With the new increase in the alcohol excise duty planned for next year, the difference between Estonian and Finnish prices will narrow significantly, as a result of which also the waning of alcohol export across our northern border will have a growing impact on tax inflow, also affecting the tourism sector and the industrial sector," Palts said.

"The state wishes to reduce the consumption of alcohol by raising the excise duty. While this is a justified goal, it has become clear by now that it is first and foremost the state budget that will be hit significantly harder than estimated as a result of the rise in the alcohol excise duty, whereas consumption will not decrease," Palts said. He said that based on the findings of the survey, the government should give consideration to forgoing the hike in the excise duty in 2018 to stabilize fiscal receipts and not give an additional boost to cross-border trade.

"Instead, one should focus on preventive activities, offering children and young people more opportunities when it comes to hobbies and non-formal learning, raising awareness and changing society's attitudes to reduce the consumption of alcohol. Only in such way can it be ensured that reduction in consumption is real and happens on a permanent basis," Palts said.

The survey on trends on the Estonian alcohol market in connection with the increases in the excise duty was carried out by the Institute of Economic Research under an order from the Chamber of Commerce and Industry.