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2019.08.16 09:00

Baltic booze wars: cuts and hikes of alcohol duties bring limited results

LRT.lt2019.08.16 09:00

While Lithuania maintains its course of raising excise duties and limiting access to alcohol, Estonia and Latvia have embarked on cardinally different paths towards addressing health effects, and limiting border-hopping trade. The results so far have been mixed.

Lithuanian Finance Minister Vilius Šapoka said earlier in June that Lithuania sees no need to get involved in excise-cutting wars and “verbal tussles” over cross-border alcohol trade.

However, Latvian Prime Minister Arturs Krišjānis Kariņš said in June that the Baltic countries should have the same excise duty rate on alcohol, which would allow Latvia, Estonia and Lithuania to use the tax as an instrument to be deployed for public health instead of engaging in “unnecessary wars”.

While health effects are difficult to measure, a business lobby in Lithuania has claimed that the strict measures on alcohol imposed by the government will lead to more cross-border trade.

While legal alcohol sales dropped 7 percent in Lithuania last year, more people went to shop for drinks across the border to Latvia and Poland, according to a Vilnius University study.

Valdas Sutkus, the president of the Lithuanian Business Confederation which commissioned the study, insists that the higher taxes on alcohol pushes people to go on shopping trips in neighbouring countries.

Lithuanians spent €366 million in Poland last year, up 5 percent from a year earlier, according to the Polish central statistics office. Two percent of the foreigners’ spending went to alcohol; however, it is unclear how much of the trade took place on the Lithuanian-Polish border.

Meanwhile, illegal alcohol sales in Lithuania are growing, according to an organization tracking and reporting illegal selling points.

Kęstutis Kupšys, of the non-profit ‘Lietuva be Šešėlio’ (Lithuania Without Shadow), said in June that higher taxes on alcohol and selling time restrictions have encouraged illegal sales of contraband drinks.

“Excise duty hikes in March made strong drinks more expensive, giving more incentives to make and purchase alcohol illegally,” said Kupšys.

A drop in prices does not lead to higher consumption

Across the border in Latvia, its Traders Association (LTA) stressed that the reduction of excise tax on alcohol by 15 percent did not result in higher alcohol consumption.

However, the prices have yet to drop, according to BNN.

The association notes that the option to purchase alcohol at the reduced tax rate became available to retailers only after August 1 and they will not cut their prices before selling off earlier stock.

Currently, 90 percent of alcohol on the market is labelled with old excise labels.

“Our country’s officials have created somewhat of a chaos and have shaken up competition – stores that have high turnover and more rapid sales are able to restock more quickly with products applied with lower excise tax,” said Juris Lamberts, director of Latvian Independent Traders Cooperative’s Development Department.

The changes came in response to Estonia reducing excise tax by 25% for beer, cider and strong alcoholic drinks on July 1.

According to Estonia’s Finance Minister Martin Helme, the changes had a positive effect on the national economy – excise duty receipts grew 40 percent in July, and cross-border trade with Latvia fell, he said on August 7.

However, according to ERR News, the minister noted “the numbers aren't big, but it is worth noting that border crossing is measured in the movement of cars, not in how much goods they have purchased in Latvia”.

Following the tax drop, price changes in Estonia have also been minimal – strong alcohol is now 6.7-percent cheaper, but beer prices declined by just 2.5 percent.

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