Latvia and Estonia prepare for booze battle over alcohol tax

If Estonia has broken the agreement with Latvia regarding excise tax on alcoholic beverages and started a pricing war, Latvia will have no choice but to respond by reducing excise taxes accordingly, Prime Minister Krišjānis Kariņš (New Unity) told reporters after a meeting of the government Cooperation Council June 17.

Several years ago both countries agreed that Latvia would raise excise taxes to bring them closer to Estonia's level, Kariņš said. At that time, Latvia decided to raise the tax gradually in order to avoid an increase in sales of contraband alcohol.

"Much to our surprise, the Estonian government and parliament have decided to violate this agreement. They are now suddenly planning to cut the excise tax steeply," said Kariņš, adding that it put Latvia in a very uncomfortable situation where the country is forced to respond, "contrary to our will."

"I absolutely don't want an excise war with Estonia, but if the Estonians break the agreement and start this war against us, we will have no choice but to respond by reducing the excise taxes accordingly," said the politician.

Latvia still hopes that a solution will be found in talks with Estonia, but all efforts to convince the Estonians have been unsuccessful so far, said Kariņš.

Latvia last raised excise tax rates on alcoholic beverages in March. Now the excise tax rates are approximately the same as in Lithuania, but they still are significantly lower than in Estonia.

The Estonian parliament in a plenary session last Thursday adopted with 70 votes for and 9 against a bill with which the excise duty rates on strong alcohol and low-alcohol beverages will be reduced by 25 percent from July 1.

It appears from the accompanying notes of the bill that the purpose of lowering excise duties is to give entrepreneurs an opportunity to cut alcohol prices in order to curb cross-border trade with Latvia. The government coalition said that lowering the price of alcohol may result in reduced alcohol sales in Latvia and increased sales in Estonia and its northern border.

After years attracting Finns to Tallinn to stock up on booze due the price difference between Estonia and Finalnd, Estonians have in recent years been heading south to Latvia for the same reasons and a string of drinks supermarkets have sprung up on the Latvian side of the border - though the owners are as likely to be Estonians.

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