Economist: excise duty must be raised carefully in Latvia

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Excise duty should be increased carefully in order not to increase the amount of smuggling, said economist, researcher Arnis Sauka, in an interview to Latvian Radio September 28.

On Monday, September 28, a study on excise tax policy in the Baltic States was presented. Sauka said that excise duty in the Baltic States has a significant impact on GDP. “One of the conclusions to remove incentives for carrying out cross-border trade would be coordination of the excise tax policy,” Sauka said.

Economists believe that policy coordination would allow Lithuania and Estonia to increase excise on alcohol. “Both Latvia and Estonia fear the actions of the neighboring country. The discussion is political more than rational. We believe that the struggle with Estonian goods cannot last forever and both countries should think about it being budget revenue at some point, but not sustainable,” Sauka said.

He said that there were two objectives for excise duty: reducing bad effects on people's health and growing budget revenues. “There is always an attempt to find balance between health and economics. It is not always desirable to raise excise duty, but it does, however, result in people smoking or drinking less.

We also see that on a border where there are smuggling risks, you should be very careful about excise. Raising excise on cigarettes to some 10% of GDP, budget income is growing by about €5-7 million, but smuggling is not increasing. If excise duties are raised to 15% of GDP, smuggling  increases so much that income disappears and money needs to be invested to fight smuggling,” Sauka said.


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