On Monday, 8 July, Latvia’s Saeima approved in the final reading amendments to the Excise Tax Law by 15%, reducing excise tax rate for strong alcohol.
Amendments will come to force from 1 August 2019 until 29 February 2020.
51 Saeima deputies voted in favour of the legislative draft and 31 voted against.
Authors of the legislative draft explained that amendments are needed because changes in Estonia’s alcohol market will negatively affect Latvian businesses and circulation of alcoholic drinks, especially on the Latvian-Estonian border.
Chairman of the Budget and Finance Committee Mārtiņš Bondars had mentioned previously that ‘this will be a temporary measure in reaction to Estonia’s decision to reduce excise tax by 25% for beer, cider and strong alcoholic drinks from 1 July onwards. We made this step in order to prevent a significant reduction of revenue, stabilize and protect Latvia’s economy, state budget and businessmen.’
Finance Ministry predicts that this situation will negatively affect the state budget by EUR 92 million. To preserve competitiveness and domestic market, the tax rate on strong alcohol needs to be reduced by at least 15%. This means the negative fiscal influence is planned to be reduced to EUR 32 million.
The majority of deputies did not support the proposal to also reduce excise tax for beer.
A number of opposition deputies voiced their dissatisfaction with excise tax reduction for strong alcohol. For example, Didzis Šmits stressed it is odd the Saeima wants to increased taxes for sweet drinks and reduce tax for strong alcoholic drinks. ‘How should we take this? Should we now drink vodka without accompanying drinks?’ asks Šmits. Saeima deputy Jūlija Stepaņenko stressed that this legislative draft’s progress will depend on the opinion of State President Egils Levits.
Excise tax regulation after 29 February could be decided, considering the agreement reached on state budget drafts, Bondars previously told journalists. He had also previously said that it will depend on talks between Latvia and Estonia as to avoid ‘a situation when two countries compete with excise taxes.’
In accordance with 8 July redaction of the legislative draft preserves in force the regulation that governs the increase of excise tax on strong alcohol starting with 1 March 2020. This regulation is preserved in support of Jānis Dombrava’s submitted proposal.
The aforementioned changes came several months after excise tax on alcoholic drinks in Latvia was increased. This happened in March.