RIGA (Reuters) - Latvia’s parliament approved a plan on Monday to cut the tax on strong alcoholic drinks by 15%, the latest move in a battle for “booze tourists” from Finland and Estonia, a week after its Baltic neighbor Estonia slashed its own liquor tax by 25%.
The cross-border alcohol trade is worth around 45 million euros ($50.5 million) for Latvia alone, as large liquor stores on the Latvian-Estonian border vie for customers. Shops there sold some 40.5 million liters (10.7 mln gallons) of alcoholic drinks last year, the Estonian Breweries Association said.
Latvia’s move will mean a 70-million-euro loss in its tax revenues, but taking no action would have meant a loss of 92 million euros as more trade moved to Estonia, the government in Riga said.
Estonia’s government expects a loss of 12 million euros in tax revenues this year due to its tax cut but sees rising sales volumes helping it recoup 3 million euros a year.
Alcohol prices in Latvia will remain lower than in Estonia.
Shoppers outside a store near the town of Ainazi on the Latvian side of the border could be seen on Monday loading up the trunks of their cars or arriving in vans, most with Estonian and Finnish license plates, to buy cheap beer and spirits.
“I think if the prices were the same or similar, no one would come just for a couple of bottles of beer or one bottle of gin,” Kim Inno, a 41-year-old Estonian pharmaceutical company worker, told Reuters TV as he shopped at the store.
Jolanta Krastina, Deputy Head of Indirect Tax Policy Department in Latvia’s finance ministry, said the economic impact of the liquor trade went beyond tax revenues.
“The people who come to Latvia and purchase alcoholic drinks also buy petrol, they also use accommodation to stay over night, or they purchase other goods in the shops,” she said.
Estonia’s aim in cutting its liquor tax is to reduce the quantities of alcohol sold at the border, Marek Uusküla, head of the Customs and Excise Policy Department in Tallinn.
“The price difference between Latvia and Estonia was too high, we really underestimated the behavior of consumers and the size of the border trade,” he said.
Latvia and Estonia, both members of the European Union, have said they want to avoid a trade dispute and that they are open for talks on the cross-border liquor trade.
“I think it’s useful to discuss whether we need to have a certain maximum or minimum limit between which different countries can operate,” Estonia’s Uusküla said.
Latvia’s tax cut will be up for revision in March 2020.
Writing by Tommy Lund in Gdynia; Editing by Gareth Jones