Uncollected alcohol excise tax cripples Lithuanian economy

  • 2010-01-28
  • By Linas Jegelevicius

Illegal alcohol production increases as excise taxes rise.

KLAIPEDA - What is the best price for a bottle of Lithuanian vodka? Ten, 25, or 35 litas (respectively 3, 7 and 10 euros)? It seems that some conservatively minded politicians in the Lithuanian Parliament wouldn’t mind if a bottle of national vodka cost one thousand litas. But would an average Lithuanian then consume less alcohol?

Seemingly not. For the last couple of years Lithuanian parliamentarians have been tugging the law regulating excise duty for aqua vitae – strong alcoholic beverages – up and down. However, in 2008, with the votes of the Conservatives from the Parliament’s Homeland Union and Christian Democratic Party, the excise tax was doubled, skyrocketing up to 4,416 litas per a hectoliter (100 liters) of pure ethyl alcohol.
For comparison, such a tax, set by the European Union and recommended to its members, is nearly two and a half times less, at 1,900 litas per hectoliter.

While the conservatives have been rejoicing over their efforts to curb the wide-spread consumption of strong alcoholic beverages, the advocates of a liberal market and the alcohol producers maintain that due to the increased excise tax, alcohol sales since 2008 have tumbled by 40 percent, and the budget in 2009 remained short of 200 million litas in excise tax revenue.
Though some politicians point out that due to the higher tax there has been a decline in cases of alcohol related illnesses, their opponents reject the notion, affirming that the decline is insignificant and, more importantly, it is overshadowed by the  budget’s gaping gap due to the uncollected tax.

Less tax collection is not the only outcome of the much discussed excise tax. As Visvaldas Rackauskas, Police Department General Commissar Deputy, told the daily Lietuvos zinios, having increased alcohol prices, people, particularly in the countryside, started looking for ways to buy cheaper vodka; ‘pilstukas’ is a widely known name for homemade Lithuanian vodka.

According to the high ranked official, analysis of data of the first half of 2009 shows that arrests for illegal ethyl alcohol production went up by five times in 2009, compared to the first half of 2008. In the first six months of 2009, compared to the same period the year before, police initiated 90 percent more administrative cases related to illegal alcohol production. To be exact, this was 542 cases.

Bearing in mind that neighboring EU countries like Poland and Latvia set half the excise level for strong alcoholic beverages, there has been significant growth in alcohol imports to Lithuania over the last two years. It is this trend that puts the national alcohol producers in their miserable situation.

“The current excise tax is illogical and defies EU policies regarding the matter. Lithuania exceeds the EU’s set tax by 2.3 times. The illegal alcohol production market since 2008 has gone up 30 – 40 percent, thus putting national alcohol producers on the brink of bankruptcy. We stand for the immediate decrease of the excise tax; to be exact, lowering it from 4,416 litas per hectoliter to 3,200 litas per hectoliter. This would correspond to the level of 2007,” Laurynas Vilimas, President of the Association of Enterprises Trading in Alcoholic Beverages, told The Baltic Times.

However, with support of the Parliament’s Social Democrats, the law regulating excise tax for strong alcoholic beverages is about to be seriously questioned. The amendments that would set less tax – 3,740 litas per hectoliter - were registered in the fall of 2009 and are to be discussed in parliament’s spring session.
“The amendments have been deliberated in different parliament committees; they [the amendments] have been approved, and therefore I don’t see any hindrance as to why the law could not be amended. I initiated the amendments upon requests from the Food Products Labor Union.

We all should realize that due to the increased excise duty our economy has suffered not only a direct loss, which consists of much lower excise collections, but also a heavy indirect loss, which includes laying off many workers, bulky payments for social allowances due to the job losses, a situation in which many alcohol producers now find themselves on the verge of bankruptcy. The state budget doesn’t receive millions of litas [from taxes]. Take a look at our supermarkets. There you will see only labels of foreign alcohol producers,” said the amendment’s initiator Social Democrat Algirdas Sysas.
Sysas goes on to add that “Life itself has shown that our alcohol excise policy was wrong, and we should not be afraid to correct it. The Social Democrats faction unanimously supports the amendments, which will allow our national strong alcoholic beverages industry be more competitive with their foreign counterparts.”

However, with Social Democrats in the parliamentary opposition, their votes may not be enough if not supported by parliamentarians from other factions in passing the much discussed amendments.
As Kazimieras Uoka, a member of the Parliament’s Homeland Union and Christian Democratic faction said, the largest parliamentary faction stands against the idea of decreasing the excise on strong alcoholic beverages.

“We should bear in mind that Lithuania is notorious for leading the European Union in alcohol production per capita, as well as in death and illness cases due to excessive alcohol consumption. The number of cases of alcohol related illnesses went down recently, and that is what should matter most. Politicians should not cater to the needs of alcohol industry lobbyists, but seek other ways in dealing with the budget deficit,” the Conservative affirms.
While liberal parliamentary factions have not made up their minds on the subject, the outcome of the amendments remains vague.