Estonia prepares excise tax on electricity

  • 2007-05-16
  • By TBT staff
TALLINN - Estonia's government, still reeling from a week of rioting and a diplomatic tour-de-force surrounding the Bronze Soldier statue, considered introducing an excise tax on electricity and gasoline at its May 10 meeting as a means of boosting revenues.

The Cabinet proposed an excise of 0.05 kroon (0.003 euro) per kilowatt-hour, which given Eesti Energia's (Estonian Energy's) sales of 6.6 gigawatt-hours last year, would amount to some 300 million kroons for the state.
Explaining the proposal, Finance Minister Ivari Padar said, "We are considering imposing a tax on the consumption of electric power and raising the motor fuel excise tax for health considerations, in this case the health of our living environment and the nature."

As an EU member, the Baltic state must gradually increase its excise to the level of wealthier member states, which it agreed to do during accession talks.
The government also wants to raise excise taxes on alcohol, tobacco, gasoline and natural gas. The ministry admitted the influence on inflation but seemed willing to accept the short-term rise for the sake of long-term stability.
The ministry said the excise on electricity would raise inflation by 1.5 percentage points, bringing the annual rise in the consumer price index to 6.2 percent in 2008. The rise would slow in 2009 and settle at around 3 percent by 2010-2011, the ministry said.
The Finance Ministry explained that inflation in 2010-2011 would be lower than if taxes were raised gradually, and the likelihood of Estonia meeting the Maastricht price stability criterion for the adoption of the common euro currency will be greater.
April inflation in Estonia amounted to 5.5 percent, down from 5.7 percent in March, thanks to a decrease in transport and telecommunication costs, the statistics office reported last week.

However, Aivar Soerd, finance minister under the previous Cabinet, said the excise would have a negative affect on Estonia's competitiveness. The excise would also impact lower-income people who spend more on food (as a proportion of total income). True, he admitted, this segment's income would grow due to a planned decrease in income taxes and an increase in the tax-free minimum, but the excise would wipe out any gains.
Soerd said the government's wish to get the excise tax hikes over and done with in preparation for the switch to the common euro currency is understandable, but more than excises must be done to adopt the euro.
The extra revenues from excise tax rises should be treated as one-off income and added to the budget surplus, Soerd said.
Commenting on the Finance Ministry's estimate that, with the impact of the excise tax hikes taken into account, inflation will next year come to 6.2 percent, Soerd said the figure is overly optimistic.

The government plans to introduce next year excise taxes on electricity and natural gas.
Next year's plans include further rises in excise duties on alcohol, tobacco and motor fuel.