E-Malt.com News article: 2814

Finland: In anticipation of Estonia joining the EU, Finland reduced its alcohol taxes substantially in March, hoping to prevent a huge increase in cross-border shopping. Ben Cooper from Just-drinks discussed the impact of the tax cut with Jaakko Uotila, managing director of Alko, Finland's state-owned retail monopoly. The entry of 10 new countries is likely to affect all EU economies in many ways over the medium to long term but arguably nowhere in the community have the effects impacted more immediately on the alcohol market than in Finland.

Indeed, Finnish consumers felt the effects of Estonia joining the EU two months prior to its entry on 1 May. On March 1, the Finnish government reduced alcohol taxation substantially, cutting spirits taxes by 44%, beer taxation by 32% and the tax on wine by 10%.

The move was an attempt to forestall a significant increase in cross-border shopping. Estonia's alcohol taxes are far lower than Finland's and its entry into the EU would effectively mean the removal of any limits for personal importation. A 50cl bottle of low-end vodka costs about €3 to €4 in Estonia against €12 in Finland prior to the tax cut, and around €8 after March 1.

"First, obviously it increased the sales of spirits because the tax cut for spirits was the biggest in terms of retail price," Alko's managing director, Jaakko Uotila, told just-drinks. "So it is no wonder that the sales of that category really increased quite a lot in the first months." Beer and wine sales were less affected by the tax cuts, with retail prices falling by 15% for beer and by 3%-4% for wine.

Even before Estonia's entry into the EU, there was still a considerable volume of cross-border shopping, albeit subject to personal limits of 32 litres of beer, 5 litres of wine and 2 litres of spirits. The Helsinki-Talinn tourist route is travelled by around 6m Finns a year, according to Euromonitor.

Although cross-border shopping will increase in spite of the tax cut, Alko expects its sales for 2004 to be roughly the same as 2003. But without the tax cut, domestic alcohol sales would have been more significantly affected. Given that Alko and Finnish grocery retailers, who are permitted to sell beer up to 4.7% abv, will still be losing considerable sales to the cross-border trade, not to mention organised and informal bootlegging, there is likely to be continued pressure for a further reduction in alcohol taxation.

However, the possibility of an increase in bootlegging remains a particular concern for the government. High taxation is designed to control the supply of alcohol and help to limit alcohol abuse but rampant bootlegging can undermine such policies. If in spite of the tax cut, bootlegging increases, it could prompt Finland to review its high tax approach. Indeed, the tax cut was not only aimed at protecting domestic sales and tax revenue; it was also designed to make bootlegging less attractive and prevent a steep rise in unregulated consumption.

It is not only the entry of Estonia into the EU that has made 2004 a landmark year for the alcohol market in Finland. On January 1, 2004, Finland finally abolished personal import quotas on alcohol for travellers from other EU countries, which had been retained since it joined the EU. However, while there had been much discussion of the possible impact of these changes - similar limits were also abolished in Sweden and Denmark at the same time - according to Uotila domestic sales were not dramatically affected by increased personal importation in the first part of 2004.

"There was a big media discussion," said Uotila, "but nothing happened but the nearest cheap country would be Germany and it was the wintertime." However, Uotila conceded that there could be some delayed effect from the January changes during the summer when more Finns will be travelling to lower tax markets such as Germany and Denmark.

When Finland joined the EU in 1995 it was expected to have a significant impact on its highly regulated, highly taxed alcohol market. While there were changes, such as the end of the spirits manufacturing monopoly, Finland was given time to bring its alcohol policies more into line with the rest of the EU, so the retail monopoly was retained and so were the high alcohol taxes. Ironically, it has been the entry of another new state into the EU nine years later which has finally prompted a substantial cut in those taxes.


23 June, 2004