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Latvian ruling coalition may be asked to discuss slower excise tax climb for alcohol

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excise, tax, alcohol, increase, Latvia, VIDDeputies of the ruling political parties KPV LV and New Conservative Party propose a discussion regarding a slower excise tax climb for alcohol starting with 1 March 2020.

KPV LV plans to reach out to coalition partners to discuss a slower excise tax climb for alcohol to thereby limit the planned budget revenue decline and growth of the illegal market.

At the meeting of Saeima Budget and Finance Committee’s Tax Policy Subcommittee that took place on Monday, 6 January, deputies and industry representatives discussed the excise tax and expected tax reform for 2021. Most of the discussion was dedicated to the 1 March planned excise tax rise for alcoholic beverages.

BNN had previously reported that starting from 1 March 2020, excise tax will increase for wine, brewed beverages (over 6%) and intermediate products (up to 15%) per 100 litres – excise tax will increase from EUR 101 to EUR 111, for intermediate products (over 15% and up to 22%) per 100 litres – from EUR 168 to EUR 185, whereas for spirit and other alcoholic beverages per 100 litres of absolute spirit the excise tax will increase from EUR 1 564 to EUR 2 025. The excise tax for beer will increase from EUR 7.4 to EUR 8.1 per 100 litres.

Latvian Alcohol Industry Association (LANA) representative Dāvis Vītols said at the meeting that changes to the excise tax for alcohol have not provided the desired result. He referenced the State Revenue Service’s and industry representatives’ compiled information, which shows that collected excise tax amounts are behind the plan for 2019.

While in 2019 it was planned to collect EUR 284.2 million, the actual collected amount was EUR 255.7 million.

«The industry had previously warned that trade tendencies are getting slower. Because of that the 2018 excise revenue plan became unreal for alcohol trade. Estonian government’s decision to reduce excise tax for alcohol turned out deadly for Latvia’s excise tax revenue plan. Since then cross-border alcohol trade has declined 25%,» says LANA representative.

Vītols also admits that if the new excise tax rate for alcohol comes to force 1 March, it will increase the price of strong alcohol by three euros, creating a risk of increasing activity for the illegal market.

Data from the association and VID shows that tax increase for alcohol will likely reduce state budget revenue by EUR 37 million. Preservation of the excise tax on its current level would reduce tax revenue by EUR 900 000.

VID representative also warned deputies that in the event of the excise tax rise at the current amount, Latvia will have the highest excise tax rate for alcohol among Baltic States, which, in turn, raises concerns about increased activity of smugglers and illegal alcohol production businesses. VID representative also referenced the period of the crisis – in 2009 there were two excise tax increases for alcoholic beverages, which resulted in the legal market reducing by more than 30%.

Latvian Beer Brewers Association’s CEO Pēteris Liniņš reported during the meeting that in the first ten months of 2019 there was a decline in the beer industry, which allows for the outlook that the planned excise tax revenue is unlikely to be reached. According to him, excise tax rate differences among Baltic States make Latvia vulnerable, so he recommended to politicians to compose a predictable tax policy that does not provide for tax increase.

Saeima deputy Gatis Eglītis said his represented political party is conservative and does not like increased tax burden. In regards to the excise tax, Eglītis said the excise tax rate for alcohol should not be changed in March 2020, instead it should be discussed in the contexts of the 2021 tax reform.

Welfare Minister Ramona Petraviča stressed that everything that is possible should be done to protect businesses.

«We’ve promised to assist businesses. This is not just about budget revenue but also jobs,» she said.

After the meeting the head of the sub-committee Iveta Benhena-Bēkena told journalists that there is a possibility of slowing excise tax climb in March, adding that her political party would be ready to offer the coalition something to talk about.

«KPV LV does not believe a large and rapid excise tax increase would be pragmatic. Perhaps we could increase it more slowly to provide a larger contribution for the budget and entrepreneurship,» added the politician, stressing that excise tax rise for alcohol could range from 5% to 10%.

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