RIGA - British American Tobacco Latvia is shutting down its production plant in Riga at the end of September, letting go 223 employees in the process, reports news agency LETA. The company blames the country's high excise tax, which has significantly increased the prices for cigarettes and boosted the black market trade, cutting into its own sales.
Corporation Relations Manager Marita Jansone says that the plant will be cleaned out and handed back to the landlord - the state of Latvia - without any penalties. Cigarettes heretofore made by British American Tobacco Latvia will now be made by other plants in Europe as part of an overall reorganization plan.
In the past two years, the legal cigarette retail market has shrunk by 40 percent, hitting low-price cigarettes particularly hard. The company is one of Latvia's largest taxpayers, paying 40 million lats (57.1 million euros) in 2008.
Saeima passed in the final reading amendments to the law on excise tax on Sept. 24, stipulating that stricter limits will now apply to the amount of tobacco products that private individuals from third countries can bring into Latvia. Individuals will also be restricted to bringing the allowed amount of tobacco products across the border to once per day.
At the moment, persons traveling to Latvia from countries outside the European Union can bring with them up to 200 cigarettes, 100 cigarillos, or 250 grams of smoking tobacco. The new amendments set the limits to 40 cigarettes, 20 cigarillos, or 50 grams of smoking tobacco. The law applies to tobacco products brought by individuals for their own consumption.
The State Revenue Service estimates that every year around 46 percent of tobacco products brought into Latvia, from Russia and Belarus and claimed to be meant for private consumption, is actually sold on the black market, that is, these products are imported without paying any excise tax. Every year the state fails to collect 4.1 million lats in excise tax.
Along with reducing the amount of tobacco products available in the illegal market, the Finance Ministry expects that legal tobacco product sales will grow and the state could boost excise tax revenues by approximately 3.2 million lats.
Finance Minister Einars Repse (New Era) had earlier announced that he was dissatisfied with the revenue from excise tax. Repse said that "Measures against the so-called legal smugglers should have been adopted already. There are people who have made a business out of bringing across the border the maximum permissible number of excised goods, several times a day."
Repse went on to say that tax collection is the main problem, and that this is the responsibility of the State Revenue Service.
Just another example of economic activity in Latvia's Kraslava region, near the border, reports six automobiles pulled over recently by border guards, with a large amount of various-brand cigarettes discovered and confiscated - 332,800 in total. Market value of the cigarettes is about 21,000 lats.