Alcohol, Estonia, Markets and Companies, Taxation

"Personally, I would not have expected such resolve from the government," Liviko CEO Janek Kalvi told.

"I have always said that to put an end to cross-border trade, the rates for strong and low-alcohol beverages alike have to be lowered by about 20-25%, and I have always said that I do not consider it very much doable politically. It looks like this government has decided to pass also decisions which are not of the easy kind," the CEO said.

He said that when the planned measures take effect, the government "definitely" will have achieved its goal to end cross-border trade on the Latvian border and restore trade on the northern border.  

According to Kalvi, the reduction by 25% will make alcohol excise duty rates equal in Estonia and Latvia. 

He described the endeavor to cut the rates already from July 1 as a challenge in its own right, as the reduction would be very steep and done at very short notice. 

The effect, however, will be seen only after some time, Kalvi added.

"You shouldn't think that prices will be on the Latvian level from July. You need to take into account that traders have their warehouses full of stocks which contain a higher excise duty as a price component. You shouldn't think that traders will be ready to absorb hundreds of thousands of euros in costs. Although some businesses here have said already that the price will drop from the same day, that is not realistic," Kalvi said, referring to a promise made by shipper Tallink.

He said the transition could take from two to four months, and longer in some cases. 

As regards purchases by Finns, the Liviko CEO said that the tax increases in Finland to date have been cosmetic, moving the tax higher by 1-2 percentage points, whereas in Estonia tax has been hiked by 15% at a time.

"We've seen certain recovery, but it has been subdued," he said, adding that now a livening was expected also on the northern border.

The government at its Cabinet sitting on Monday reached an agreement in principle on the budget strategy for 2020-2023 and the draft of the state budget for 2020 and is about to handle both documents in non-Cabinet format already this Thursday.

As part of the negotiations on the budget strategy and the state budget for 2010, the government decided that the excise duty on both strong alcohol and low-alcohol beverages will be cut by 25% from July 1 to curb cross-border trade on Estonia's southern border.

The ruling coalition handed a bill lowering the alcohol tax to the parliament on Monday.