The first week of Estonia’s new rates of excise duty on alcohol, slashed 25% with effect from July 1, is now passing without hints of an escalating tax war between neighbours, both vying to make gains from cheaper booze from visitors from abroad, particularly Finland.
It did look for a moment as if the two Baltic states were ready for a race to the bottom on taxing booze after Latvia made a lightning-fast change to its excise laws in June, cutting the duty on alcohol 15% in response to the Estonian announcement.
Cheap alcohol has become a huge business in Latvia, attracting Finns – where the new government is hinting at raising alcohol excise duties – as well as Estonians to stores along the border.
“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 Riga,” the Latvian public broadcasting service LSM reported in June.
However, there quickly surfaced worries that cheap alcohol could lead to increased consumption, the revenue from which would be offset by the onset of health and social problems.
After each country slashed its excise duties, the mood now appears to have calmed down.
“Estonia will not go along with this race in lowering excise duty rates on alcohol,” the Estonian Prime Minister Juri Ratas said in June in reaction to the Latvians’ reducing their rates.
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