Postimees: Estonia's new govt planning annual price increase for alcohol, tobacco

  • 2023-04-14
  • BNS/TBT Staff

TALLINN - Estonia's incoming government wants to increase the excise duties on alcohol and tobacco, but the politicians do not yet want to say just by how much, Postimees reports.

"The coalition partners have agreed upon a slow yearly growth, and a proposal by the finance minister is expected regarding concrete rates," head of communications at the Social Democratic Party Merlyn Sade told the newspaper.

The Reform Party's Finance Minister-designate Mart Vorklaev said that it has been agreed that the taxation of health-related risk-taking behavior would continue while at the same time an increase needs to be avoided in cross-border trade.

"It should also be a part of the tax package that's planned to be brought into the Riigikogu during the spring session," Vorklaev said. "We will try to adhere to the principle that tax changes be known six months before they enter into effect, and we'll also monitor our neighboring states' tax rates to prevent cross-border trade."

Distillery Moe OU sales manager Sven Sulga noted that there have been talks of an annual 5-percent increase.

"The difference in excise duties with Latvia is small at present," Sulga said. "If Latvia doesn't increase it's duty rate, people might not go to Latvia [to buy alcohol] in the first year, but they will start doing it after that. Looking at all the incoming taxes, however, I think people will go to Latvia out of spite," he opined.

CEO of Maxima Estonia Kristina Mustonen noted that as a result of every tax increase, including in excise duty rates, the final consumer suffers the most as their purchasing power decreases.

"It would definitely be interesting to know how the state plans to avoid, in the case of products subject to high excise duties, a future scenario where the same goods can be obtained at a cheaper price from our neighboring countries and the Estonian taxpayer decides to take their money there instead. I am of the opinion that the increase in excise duty rates will boost alcohol tourism once more, and trade near the border will gain impetus for the benefit of our neighboring state's budget," Mustonen noted.

Sulga explained that taxes already account for close to two-thirds of the price of a bottle of strong alcohol.

"A 0.5-liter bottle of vodka costs 6.5 euros. Without VAT, that's 5.42 euros. Deducting the excise duty, it's 3.67. Only 1.75 euros will be left for production, transport and store margin," he said. "Not all craft drink producers will survive, there's no doubt about it. It's not just the excise duty, after all, the VAT increase will affect everyone."