Alcohol excise duty receipt to fall short by tens of millions

Photo: Arvo Meeks / LEPM

Alcohol excise duty receipt forecasts have never missed the mark by as much as they will in 2017. While we will learn the truth in early February, it is clear forecasts are too optimistic by some €40-50 million. It is probable that even the adjusted summer estimate will not be met.

Receipt of alcohol excise duty has been growing steadily in recent years, taking annual leaps of around €14 million on average since 2010. However, last year will probably be the first 12-month period in the past decade that will see lower revenue than the year before. If alcohol excise duty receipt amounted to €251 million in 2016, it is likely that this year proceeds will be more like the €222 million result from 2015.

Back then, the budget fell €18 million short as the government had decided to postpone the hike from January 1 to February 1. If otherwise traders would have acquired stockpiles toward the end of the year, they now did it in early 2016. This in turn meant that receipt for 2015 fell short.

The finance ministry forecast alcohol excise duty receipt at €276.4 million in the 2017 state budget. The forecast was cut to €237.5 million in summer. That the ministry’s initial forecast was mistaken became clear toward the start of the year when it was apparent excise duty rates would be doubled for several product groups, while it was difficult to forecast the effect of the hike on consumer behavior and receipt of tax.

Actual receipt for last year will become clear in early February. The tax board calculates receipt on cash basis, when the state will collect the money, which would have given the state €226 million in excise duty revenue last year. The problem with this method is that it no longer ties in with the finance ministry’s data as the latter calculates receipt on accrual basis, or when the trader was obligated to pay the duty. This means that data from the tax board and the finance ministry cannot be compared on a month-to-month basis.

Having taken this into account, we compared the tax board’s calculations for the past 11 months to receipt in previous years and concluded that actual revenue will also fall short of the ministry’s summer forecast.

Because the duty was hiked in February and June last year, one might think receipt will grow; however, the annual receipt pattern gives no reason for such optimism. There is another variable to

consider – consumer behavior. Flourishing border trade does not speak of generous tax receipt, at least according to traders.

Postimees proposes three scenarios of alcohol excise duty receipt for 2017.

Scenario A

The finance ministry’s summer forecast of €237.5 million will miraculously be met. This would require tax receipt of around €40 million in December, which would count for 16 percent of annual receipt (December made up 12 percent in annual receipt in 2016). Receipt was a little better in January of last year when traders stockpiled alcohol in anticipation of the February hike.

Scenario B

Alcohol excise duty receipt will roughly match that of last year, coming to around €30 million in December. This would be good enough for annual revenue of €227 million. That would match the tax board’s 2017 estimate and the difference with the ministry’s forecast could be explained through different methodology. This scenario is made more likely by the fact the duty was hiked twice last year.

Scenario C

The relative importance of December in annual receipt will be the same it was the year before last. That would put December receipt at €26.7 million and the annual at €224 million. The result would fall €13.5 million short of even the adjusted summer forecast.

None of the three scenarios is accurate; however, it is likely the truth will fall somewhere around scenarios B and C, which means that excise duty receipt will be some €40-50 million short of the initial forecast included in the state budget. It will not burn a hole in the state’s wallet as other taxes have contributed at least twice the deficit.

However, the extent of the miscalculation is noteworthy as the ministry has at most erred by 11 percent in the past. This happened in 2010 when the ministry’s underestimated receipt of tax. This time, the deficit will amount to 20 percent. Enough money to construct the four-lane Ardu-Kose section of the Tallinn-Tartu highway or procure 12 K9 Thunder mobile artillery pieces from South Korea.