Vodka tourism damage greater than thought

Lennart Ruuda
, reporter
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Photo: Arvo Meeks / LEPM

The Tax and Customs Board (MTA) finds that border trade with Latvia cost Estonia €30 million in alcohol excise duty revenue last year. More than the finance ministry forecast.

The agency’s data suggests alcohol excise duty receipt came to €227 million in 2017, which falls €33 million short of estimates. It also falls some 10 percent short of last year’s result when duties were far lower.

This means that rampant border trade cost the state around €30 million last year, fresh MTA data suggests. The finance ministry said in summer that people’s habit of going to Latvia for vodka and beer will create a roughly €20-million budget hole.

We can add to this missed motor fuel excise duties as the past year has shown people, especially truck drivers, also refuel their vehicles in Latvia. The tax board estimates that refueling outside of Estonia grew by 40 million liters by the end of last year. This would mean a motor fuel excise duty deficit of around €20 million. All in all, the state could have lost around €50 million in excise duty revenue last year.

It must be said that the MTA data is not final. While the board calculates receipt on a cash basis, the finance ministry proceeds based on accrual. The method used by the MTA shows the month of tax receipt, while the ministry looks at which month the taxes are for.

The truth will become clear in early February when the finance ministry will disclose how much excise duty money Estonians contributed to the Latvian state budget.

Asked how serious the board finds the growing alcohol excise duty tax hole, Director Valdur Laid said that it is not a tax hole in the traditional sense but simply border trade, which is entirely legal. That is why it is not up to the tax board to provide an assessment, and it must concentrate on cases where alcohol bought in Latvia is illegally sold in Estonia instead.

“For us, the problem is Latvian alcohol sold by Estonian bars, restaurants, and other caterers,” Laid said. “We have analyzed the situation and found the practice is not epidemic,” he added.

The tax board has organized a series of raids in bars and diners but mostly found people being paid under the table instead of illegal alcohol. “We have not come across great quantities of Latvian alcohol being sold as the media has sometimes suggested,” Laid said.

Deputy Director of MTA Rivo Reitmann said that the board has had doubts of bars selling Latvian alcohol on four or five occasions.

Looking at total receipt of tax for last year, there is cause for satisfaction as revenue grew by €412 million or 6.6 percent year-over-year. Cash-based receipt exceeded forecasts by €30 million, with total tax revenue coming to €6.7 billion.

Revenue was largely the result of strong economic growth. Social tax receipt grew by 2 percent and that of VAT by 3 percent year-over-year. Natural person income tax receipt also grew. Receipt of other major taxes, including excise duties and physical person income tax, fell. One third all taxes – €2.1 billion – was paid by 69 leading companies.