The prices of alcoholic beverages in Latvia might grow more than excise tax this year, says CEO of Latvian Alcohol Industry Association Dāvis Vītols.
He says LANA outlook for the near future states there could be a considerable increase of prices in the alcohol beverages segment, which, in turn, is tied to the alcohol excise tax increase starting 1 March and retail discount increase at the expense of the excise tax.
Vītols explains that approximately 70% of prices of graded beverages consist of excise tax and VAT. Because of excise tax rise, prices of alcoholic beverages, such as 40 C strong drinks in 1 litre bottles will increase by at least one euro this year. Still, prices could grow more rapidly depending on wholesale traders’ decision to increase shelf prices. «The shelf price could grow by more than one euro,» said Vītols.
According to him, to preserve acceptable prices, LANA proposes abolishing the planned excise tax for alcoholic beverages in 2019 and 2020. «If the current excise tax rate is not frozen, we will end up with a considerable growth of prices, which could directly benefit the illegal market,» warns Vītols.
Rimi Latvia public relations manager Dace Preisa said product prices consist of several components and prices are usually increased proportionally to a specific variable. In this case this is excise rise. «It is currently hard to predict if the changes expected to come in March could serve as the only condition that will affect prices. Producers sometimes add changes to their products’ prices even if slight changes are observed for transport, raw material and labour costs,» says Preisa.
Commenting on whether or not excise tax rate increase could potentially reduce alcohol consumption, Preisa notes consumers usually become more reluctant towards products whose prices increase due to tax changes. Still, buyers also more actively use the opportunity to purchase products at discounted process. This means the total number of sold units tends not to change annually.
Maxima Latvia communication manager Liene Dupate says prices of alcoholic beverages are influenced by factors similar to other products, including labour costs, fuel costs, raw material costs, excise tax rate, economic situation in the country and others. «Excise tax is one of the factors that could affect prices. Because of that, as excise tax rates change, the price of products changes with it,» says Dupate.
She could not say if excise tax rate increase has effect on consumption, saying that demand for alcoholic beverages depends on a number of factors.