Prime Minister replied to the interpellation concerning the impacts of the trading in border areas
Prime Minister Jüri Ratas replied to the interpellation concerning the Government’s unwillingness to address the trading in border areas (No. 441), submitted by members of the Riigikogu Maris Lauri, Urve Tiidus, Arto Aas, Aivar Sõerd, Meelis Mälberg, Yoko Alender, Heidy Purga, Madis Milling, Kalle Laanet, Urmas Kruuse, Igor Gräzin, Anne Sulling, Johannes Kert, Laine Randjärv, Peep Aru, Ants Laaneots, Liina Kersna, Jüri Jaanson, Keit Pentus-Rosimannus, Terje Trei and Aivar Surva on 22 August.
The interpellators referred to the fact that, this year, tax revenues were significantly lower than planned and accruals to the state budget would remain smaller than planned. The interpellators wished to know how big Estonia’s tax revenue loss was as a result of the increased excise duties and trading in the border areas.
Ratas said that alcohol excise duty rates generally were higher in Estonia than in Latvia. “At the moment the beer excise duty in Estonia is 149 per cent higher than the excise duty in Latvia, but I emphasise that the beer excise duty has been higher in Estonia than in Latvia for many years,” Ratas said. He added that the excise duty for strong alcohol in Estonia was 50 per cent higher than the excise duty in Latvia. Ratas explained that the Government had unanimously adopted at its 26 September sitting, and initiated in the Riigikogu, the Bill on Amendments to the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act and Other Acts, which cancelled the rise of the excise duty rates for alcohol planned for 2019 and 2020. When the amendments enter into force, the difference in excise duty rates will decrease to 109 per cent in 2020, and the difference in the excise duty for strong alcohol may decrease to 24 per cent if Latvia raises the excise duty for strong alcohol as planned, and Estonia does not increase it in the following two years.
Ratas noted that the calculation of the loss of tax receipt due to trading in the border areas was theoretical and was based on the presumption that excise goods that were bought elsewhere would have been bought in Estonia. At the same time, the quantities bought in Latvia are large precisely because of low price, and these quantities would be smaller if the price was higher. In the case of alcohol, trading in the border area includes trading both in the southern and northern border area. The trading in the southern border area has increased, and it is decreasing in the northern border area, thus Estonia’s tax revenue is decreasing due to trading in both border areas. The trading in the northern border area mainly consists of the purchases by Finns, and it has decreased by around 23 per cent this year in comparison to last year. The trading in the Latvian border area accounts for 24.7 per cent of the litres legally sold in Estonia, together with the purchases by Estonian people. In Ratas’s opinion, the sales in the Latvian border area also include the purchases by Finns, and the purchases that have been made in Latvia account for a large part of the decreased trade on the northern border. “Based on the quantities sold in the Latvian border area, we estimate the loss of excise duty to amount to ca 66 million euro, and to 89 million with VAT,” Ratas said.
The difference in the price of tobacco products in Estonia and Latvia is not great and therefore the volume of the trade in the border areas is relatively modest. “According to our estimations, the loss of excise duty arising from trading in tobacco products in the border areas will amount to 5.4 million euro this year, which will make 6.8 million with VAT,” Ratas said. “There has been a soaring increase in trading in the border areas in the fuel sector since 2016. Refuelling in Lithuania and Latvia increased significantly, and as a result the state will lose excise revenue in the amount of 33.3 million in 2018,” the Prime Minister explained.
Ratas acknowledged that the ambition and the expectations had proved to be too high. He admitted that the analysis of the possible rise in excise duties, and the forecast made on the basis thereof had been incomplete. As a result we can see that the real impacts have been somewhat different in the market situation. “The Government coalition has cancelled the rises in alcohol excise duty that had been adopted earlier. The Ministry of Finance has also adjusted the forecasts for budget receipts and, as is known, the Government also reduced by half the rise of the excise duty rate for strong alcohol and beer planned in the beginning of this year,” the Prime Minister said.
Ratas also replied to the interpellation concerning alternative solutions for the construction of the eastern border (No. 444).
The Minister of Education and Research Mailis Reps replied to the interpellation concerning the termination of the training of sign language interpreters (No. 445), and the interpellation concerning implementation of the Basic Schools and Upper Secondary Schools Act adopted by the Riigikogu on 15 January and the other associated Acts amended (No. 447).
The sitting ended at 6.58 p.m.
Verbatim record of the sitting (in Estonian):
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Riigikogu Press Service
Gunnar Paal,
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