Estonia: Parliament Adopts Alcohol Tax Reduction
Riigikogu, the Estonian parliament, has passed a bill lowering alcohol excise duty rate by 25%.
At its third and final reading, the Riigikogu voted 70-9 in favor of a bill that will lower the alcohol excise duty rates for beer, cider and hard liquor by 25%. The policy change comes into force already on July 1, 2019.
The bill amending the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act, which was introduced by the parliamentary groups of Isamaa, the Conservative People’s Party of Estonia (EKRE) and the Centre Party, will lower the alcohol excise duty rates for beer, cider and strong liquor in an effort to curb cross-border trade.
The letter of explanation accompanying the bill noted that with the lowering of alcohol excise duty rates, businesses will be given the opportunity to reduce alcohol prices in order to bring cross-border trade with Latvia under control.
According to the letter of explanation, reduced alcohol prices in Estonia may lead to a reduction in the amount of alcohol purchased in Latvia and an increase in the amount of alcohol purchased in Estonia.
Baltics: Alcohol Tax Race to the Bottom Unfolding
However, Latvia has already responded to the alcohol tax reduction in Estonia and in the Baltic a race to cut alcohol taxes has started to unfold. Sparked by the move of Estonia to slash alcohol taxes, neighboring Latvia and Finland are also considering tax reductions.
Cross-border trade is a serious concern in the close-knit Baltic region. Recently Estonia announced plans to cut its alcohol taxes, a move likely to have negative consequences for levels of alcohol harm in the country – but it appears to have sparked a race to the bottom across the region.
The alcohol taxation race to the bottom is not the only negative aspect of Estonia’s alcohol tax reduction. The lowering of alcohol prices in Estonia is also likely to threaten positive developments in terms of alcohol harm reductions in recent years.
Improvements in alcohol-related harm are now in jeopardy
It was recently reported that consumption of alcohol in Estonia has decreased to the lowest level seen in a decade, according to a report entitled “Estonia’s alcohol market, consumption and policy in 2018.”
The report was commissioned by the Ministry of Social Affairs and conducted by the Estonian Institute of Economic Research.
Last year, Estonian residents consumed an average of 10.1 liters of pure alcohol per capita. This is the lowest reported level of alcohol consumption over the last decade.
The country achieved this progress in 2018 on reducing alcohol harm through the implementation of evidence-based alcohol control policy, including raising alcohol taxes. Unfortunately the new Estonian government has decided to slash the alcohol tax by 25%
59% of respondents indicated that they think alcohol use levels remain too high in Estonia. According to the respondents the most severe alcohol-related problems in Estonia are:
- Driving while intoxicated (92%),
- Domestic violence (84%) and
- Health problems (83%).