Baltics: The Beer Tax War
The alcohol tax war has led Latvia to cut alcohol taxes following Estonia’s move in slashing 25% of the alcohol tax. However, in the border town Valka-Valga the reduced taxes has had no impact on business.
After the Estonian tax cuts on July 1st, Latvia also cut their taxes in fear of loosing cross border trade profits. However, in late July there were little indications of the tax reductions by Estonia having an effect on business, which questions whether the Latvian reduction — which came into force on August 1 — was necessary.
According to the alcohol industry itself, the Estonian tax cuts did not have any negative impact on Latvian alcohol sales even before Latvia also reduced their taxes.
The Estonian reduction of taxes had no effect nor on our turnover, nor types of clients coming,” said Lauri Uibo, manager and member of the board at the Estonian-owned company Aldar Latvia, which operates SuperAlko shops in Latvia, as per Euro News.
The principle reason of Latvia’s tax cuts was fear of losing profit from Estonian and Finnish cross-border alcohol trade. However apparently Estonia’s tax cuts did not reduce Latvian cross-border alcohol trade to begin with. Instead the tax war is just adding to the growing alcohol harm on health in one of the heaviest alcohol consuming regions of Europe.
Short-cited decisions lead to greater loss
In Valka-Valga, Estonians and Fins alike were piling into alcohol shops on the Latvian side of the border for cheap beer even before Latvia reduced taxes. Now with tax reductions, Latvia has added to the growing alcohol problem in the region. Public health experts warn the tax war will lead to more consumption and therefore increased alcohol harm in a region already suffering from significant burden due to alcohol.
Short cited decision making such as the tax cuts, from governments focusing more on profit than public health exacerbates problems and in the long run leads to more loss than gain due to health and social costs.
The World Health Organization recommends increasing taxes as an evidence-based policy measure to decrease consumption and harm from alcohol. When applied correctly, tax increases can also boost revenue for governments while improving public health.
In a close knit region such as the Baltics, one country’s decision to undermine alcohol control can create a domino effect, ultimately resulting in greater public health harm and cost for the whole region in the long-term.