Estonia: Estonian brewers concerned about sped-up increase in excise duty

Estonian beverage producers Saku Õlletehas and A. le Coq have both expressed concerns about multiple negative effects the sped-up increase in the excise duty on beer and cider, the second hike of which went into effect on July 1, could have, ERR News reported.

"The drastic hike in the excise duty on low-alcohol beverages taking place this and next year will put our activity on the domestic market under serious pressure," Saku Õlletehas board member Jaan Härms told BNS. "It can be expected that already considerable cross-border trade with Latvia will multiply and up to half of internal sales may head for the border."

According to alcohol producers' forecasts, the state will lose a total of €174 million in tax revenue next year due to an increase in cross-border trade, he said. Manufacturers of low-alcohol beverages also said that the increase in excise duty on beer can have a negative impact on people's health, as a price increase may motivate consumers to consume more hard liquor instead. "In this regard, we in Estonia are already currently in a noticeably worse situation compared to the EU average, as opposed to, for example, average beer consumption in Europe," he noted.

Härms said that a hike in beer excise duty will also drive people to people stock up on large quantities of alcohol on the Estonian-Latvian border. "For us as manufacturers, this of course means the need to adapt to the changed market situation," he explained. "We are carefully observing what will happen to our business environment after the tax hike and, if necessary, will make forward-looking decisions according to that."

"The Supreme Court's decision is final and we have to accept it," A. le Coq board chairman Tarmo Nööp told BNS. "It is a shame that Estonia has become a country in which the current government with their decisions has clearly said that they do not consider the business environment important and, if they want, they will drastically change everything which has previously been written into law.

"This Supreme Court decision in particular has been carefully expected from abroad and the decision will definitely impact further decisions to invest in Estonia," he continued. "I can definitely say that foreign investments into Estonia will decrease as Estonia is no longer considered trustworthy."

According to Nööp, the impact of this year's second excise duty hike on low-alcohol beverages can fully be observed next year, but right now, retailers have stocked up on low-alcohol beverages in massive amounts. "Cross-border trade with Latvia, which has already increased exponentially without an increase in excise duty and accounts for 20 percent of all Estonian sales, will grow to approximately 50 percent and bring with it a wave of smaller rural shop closings."

The board chairman estimated that as a result of these excise duty hikes, th state will lose €150 million they would have otherwise earned from excise duty and VAT revenue, which will force the government to find even more new taxes. "These are bigger impacts and in the end will hit the state itself," he said.

The Supreme Court of Estonia announced on June 30 that the court does not think that the legislative body's decision to increase the excise duty on beer and cider faster than planned is unconstitutional. The chancellor of justice had turned to the Supreme Court to determine whether the sped-up increase in alcohol taxes was in conformity with the Constitution, citing that the rapid increase interferes with the freedom to conduct business of companies involved in handling alcohol.

The second increase in the excise duty on beer and cider this year, which took effect on Saturday, July 1, hiked the rate of the duty 70 percent to 15.52 cents per percent of alcohol by volume (ABV). The rate of the duty for strong liquor will increase ten percent per year through 2020; its 2017 increase entered into effect in February already.

04 July, 2017