Tax-free abolition to harm shipping companies

TALLINN - Ongoing European Union accession talks have begun to touch on the sensitive topic of abolition of tax-free trade, which could arguably hit shipping companies and diminish Estonia's popularity among tourists.

Extremely cheap alcohol - an important draw for many Finnish tourists for several years - is likely to become a memory in a few years' time.

When Estonia joins the EU, some argue that it will lose part of its heavy passenger flow on the Tallinn-Helsinki and Tallinn-Stockholm ferry routes because it will be forced to abolish tax-free shopping on boats.

While the Transport and Communications Ministry advised Prime Minister Mart Laar to apply for a transition period of at least 10 years before the abolition of tax-free trade, he replied that Estonia wasn't going to ask the EU for another transition period.

Yet Laar said the subject would arise in a special discussion during the accession talks and that the government will consider the report from the Ministry of Transport again in two weeks.

Laar suggested tax-free trade be abolished in Estonia at the moment of becoming a member country.

The Transport and Communications Ministry said that Estonia needs a transition period in tax-free issues in order to prevent economic harm which would be caused by quick suspension of tax-free shopping. Minister Toivo Jurgenson stated that duty-free trade makes up a significant part of the shipping companies' income, and the Estonian economy would lose about 3 billion kroons ($172.11 million) after its abolition.

Jurgenson mentioned that the tourism sector provides about 15 percent of Estonia's GDP.

"Without tax-free trade, economic growth for the year 2000 would have been zero percent," said Jurgenson.

Foreign Minister Toomas Ilves said the KPMG auditing company conducted a survey for the government on tax-free elimination effects last spring.

"The survey showed us the situation is not that dramatic at all. Abolition of tax-free trade on the ships won't have an immensely strong effect on the Estonian economy," said Ilves.

Toomas Luman, chairman of the Estonian Chamber of Commerce and Industry, agreed.

"The recent tax-free media boom is just a question of competition between shipping companies working the Tallinn-Helsinki-Stockholm lines with a stop in the [duty-free zone of the] Aland Islands," said Luman.

The KPMG survey described three scenarios, and even the positive one predicts an unavoidable rise in boat ticket prices by 30 percent.

As of 1999, the price of a ticket was 150 kroons, and it would have to increase to 200 kroons (otherwise the ferry company Hansatee would have lost 162 million kroons per year) according to the positive scenario. The positive outline also expects that the number of passengers would increase by 10 percent thanks to lower tobacco and alcohol prices in Estonia and simplification of shipping and tourism.

The medium scenario envisioned by the KPMG survey suggests the number of passengers on the Tallinn-Helsinki line would drop by 10 percent and the price of a ticket would increase by 100 kroons. Hansatee would have to fire about 100 of its employees.

Under the negative scenario, 1999 ticket prices would almost double, shipping companies would lose one- third of their passengers and would have to sack 350 to 400 workers.

Hansatee's opinion, presented by board member Kalev Jarvelill, is closest to the negative scenario. Shipping companies currently operating in Tallinn would focus on other markets, because the prices of boat tickets would nearly triple and the number of passengers between Estonia, Finland and Sweden would decrease by 50 percent, Jarvelill told the Baltic News Service on Jan. 9.