Saeima to slash alcohol tax as booze war with Estonia hots up

The Latvian parliament (Saeima) is set to respond rapidly to recent moves in neighboring Estonia by dramatically reducing the excise tax payable on alcoholic beverages as soon as June 20, reports LSM's Latvian service, citing information from the LETA newswire.

Members of the Budget and Finance (Taxation) Commission of the Saeima reportedly agreed June 19 to include the bill on amendments to the Law on Excise Duty on the agenda of tomorrow's parliamentary meeting.

The Commission will also ask for the bill to be treated as urgent, meaning that instead of going through three Saeima readings it can be passed in two readings during a single session tomorrow.

Commission President Martins Bondars (Development/For!) said that as Estonia has adopted amendments to the excise law very quickly which will have an impact on employment and businesses in the Latvian border area, as well as expected contributions to the state budget, speed was necessary. 

"Normally, such activities happening when countries discuss things behind the scenes and do not move fast. But given the fact that this has happened quickly, we regretfully need to follow short-term solutions," said Bondars.

He said that the amendments were necessary in order to compensate in the short term for the situation that arose after Estonia's action on its excise duty on alcohol.

The amendments were prepared in cooperation with the Ministry of Finance. They provide for a reduction of excise duty on alcohol by about 15% from 1 July. Currently, the law stipulates that spirits for 100 liters of absolute alcohol duty are calculated at the rate of 1840 euros, while the amendments to the law are intended to reduce them to 1564 euros. Amendments to the law are expected to enter into force the day after their promulgation by the President - which is also likely to happen quickly.

The Estonian Parliament has passed a law that provides for a 25% reduction in the excise duty on beer, cider and spirits as of 1 July in a bid to help Estonian retailers and producers compete against the cheaper alcoholic drinks available a short hop across the border in Latvia.

Selling drinks to Estonians, Finns and others has become a big money-spinner for Latvia with a string of discount drinks stores along the border providing much-needed jobs and economic activity in areas far from Rīga. However, the prospect of a protracted price war driving prices lower is starting to raise fears that it might also stimulate consumption of alcoholic drinks and all the associated problems that brings. 

Speaking on LTV June 19, Prime Minister Krišjānis Kariņš said Estonia's move could dent the Latvian budget by as much as 100 million euros and that while Latvia does not want to become a cheap alcohol country and in fact had plans in place to gradually increase the tax on alcohol, Estonia's sudden action had forced a quick response.

 

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