Impact of Changes in Excise Tax Rate for Strong Alcohol on Consumption and State Revenues in Latvia
State tax revenues in most countries started to decrease during the recession. Government of Latvia decided to compensate the decline by increasing rates of several taxes including excise tax on strong alcohol. The total increase in 2009 constituted 42% and the rate increased from 896€ to 1 266€ for 100l of absolute alcohol. Since then this has had a negative impact on consumption volumes and the split between legal and illegal market. The legal alcohol sales decreased by almost 50% (by volume), consequentially having negative effect on the State revenues from VAT and excise tax. Estimated results for 2010 are indicating 54 million € decrease in VAT, excise tax and other taxes versus 2008 (excise tax -19 million €, VAT -30 million €, other taxes -5 million €). The paper aims to analyze impact of the increase in excise tax on consumption patterns, State revenues and competitiveness of the local companies to draw up proposals for the state authorities regarding more effective tax policies. The analysis reveals a relationship between excise tax rate, illegal alcohol market and State revenues. The results can be used to improve excise tax system and effectiveness in Latvia.
[1] World Health Organization, Fact sheet No. 349, 2011.
[2] E. Brainerd, M. David Cutler. "Autopsy on an Empire: Understanding
Mortality in Russia and the Former Soviet Union", IZA, Discussion Paper No. 1472, 2005.
[3] P. Walberg, M. McKee, V. Shkolnikov. "Economic change, crime, and
mortality crisis in Russia: a regional analysis", British Medical Journal, Vol. 317, 1998, pp. 312 - 318.
[4] J. Mullahy, J. Sindelar. "Health, Income, and Risk Aversion: Assessing
Some Welfare Costs of Alcoholism and Poor Health", National Bureau
of economic research (NBER - Cambridge), Working Paper No. 4649,1994.
[5] P. Anderson, B. Baumberg. "Harmful drinking", European commission,
DG Health and Consumer Protection, 2007.
[6] S. Cnossen. "Alcohol taxation and regulation in the European Union",
Munich Society for the Promotion of Economic Research (CESifo),
working paper No. 1821, 2006.
[7] V. Kaže, A. Stratei─ìuks, R. ┼ákapars. "Consumer Values and
Consumption Patterns Driving Latvian Strong Alcoholic Beverages
Market". Proceedings of International Conference ÔÇÿCurrent Issues in
Management of Business and Society Development-, Riga, Latvia, 2011, pp. 331-341.
[8] J. Brewer, A. Saliba, B. Miller. "Consumer behaviour and sensory
preference differences: implications for wine product marketing".
Journal of Consumer Marketing, Vol. 28 No. 1, 2011, pp. 5-18.
[9] Euromonitor. Online alcohol industry trade sources/national statistics
and consumer lifestyle trends. http://www.portal.euromonitor.com
(12.01.2011).
[10] Data Serviss. Social Values methodology. Internal documentation,
basics available on web: http://www.data.lv/index.php?id=26 (retrieved
10.12.2008).
[11] State revenue services of the Republic of Latvia, electronic resource
www.vid.gov.lv.
[12] The Cabinet of Ministers of the Republic of Latvia, electronic resource
www.mk.gov.lv.
[13] L. Peattie. "An Idea in Good Currency and How It Grew - The Informal
Sector", World Development, Vol. 15, No 7, 1987, pp. 851-860.
[14] E. Feige. "Defining and Estimating Underground and Informal
Economies: The New Institutional Economics Approach", World
Development, Vol. 18, No 7, 1990, pp. 989-1002.
[15] State revenue services of the Republic of Latvia, National Customs
board, "Alcohol consumption report for 2007; 2008; 2009; 2010".
[16] T.F. Babor, R. Caetano, S. Casswell, G. Edwards, N. Giesbrecht, K.
Graham, J. Grube, P.Gruenewald, L. Hill, H. Holder, R. Homel, E.
Österberg, E.J. Rehm and I. Rossow. "Alcohol: No Ordinary
Commodity - Research and Public Policy", Oxford University Press,2003.
[17] "Alcohol consumption report for Latvia (2010)", Association of alcohol
producers and distributors (ARTA), 2011.
[18] "Alcohol market in Latvia (2010)", Association of Latvian alcohol
producers and distributors, 2011.
[19] Nielsen, "Report on alcohol consumption in Latvia (2007, 2008, 2009,
2010)", 2011.
[20] A. Stratei─ìuks, D. Fadejeva, V. Kaže. "Excise tax policy for Alcohol and
Cigarettes in Latvia, its impact on State revenues and the Laffer Curve". Proceedings of International Conference ÔÇÿCurrent Issues in
Management of Business and Society Development-, Riga, Latvia,
November 2011, pp. 603-612
[21] Central Statistical Bureau of the Republic of Latvia, www.csb.gov.lv, 2011.
[22] A. Stratei─ìuks, V. Kaže, R. ┼ákapars. "Influence of the increase in strong
alcohol excise tax on the state revenues in Latvia", Conference
proceedings: Current issues in management of business and society
development -2011, Riga, Latvia, May 2011, pp. 709-715.
[1] World Health Organization, Fact sheet No. 349, 2011.
[2] E. Brainerd, M. David Cutler. "Autopsy on an Empire: Understanding
Mortality in Russia and the Former Soviet Union", IZA, Discussion Paper No. 1472, 2005.
[3] P. Walberg, M. McKee, V. Shkolnikov. "Economic change, crime, and
mortality crisis in Russia: a regional analysis", British Medical Journal, Vol. 317, 1998, pp. 312 - 318.
[4] J. Mullahy, J. Sindelar. "Health, Income, and Risk Aversion: Assessing
Some Welfare Costs of Alcoholism and Poor Health", National Bureau
of economic research (NBER - Cambridge), Working Paper No. 4649,1994.
[5] P. Anderson, B. Baumberg. "Harmful drinking", European commission,
DG Health and Consumer Protection, 2007.
[6] S. Cnossen. "Alcohol taxation and regulation in the European Union",
Munich Society for the Promotion of Economic Research (CESifo),
working paper No. 1821, 2006.
[7] V. Kaže, A. Stratei─ìuks, R. ┼ákapars. "Consumer Values and
Consumption Patterns Driving Latvian Strong Alcoholic Beverages
Market". Proceedings of International Conference ÔÇÿCurrent Issues in
Management of Business and Society Development-, Riga, Latvia, 2011, pp. 331-341.
[8] J. Brewer, A. Saliba, B. Miller. "Consumer behaviour and sensory
preference differences: implications for wine product marketing".
Journal of Consumer Marketing, Vol. 28 No. 1, 2011, pp. 5-18.
[9] Euromonitor. Online alcohol industry trade sources/national statistics
and consumer lifestyle trends. http://www.portal.euromonitor.com
(12.01.2011).
[10] Data Serviss. Social Values methodology. Internal documentation,
basics available on web: http://www.data.lv/index.php?id=26 (retrieved
10.12.2008).
[11] State revenue services of the Republic of Latvia, electronic resource
www.vid.gov.lv.
[12] The Cabinet of Ministers of the Republic of Latvia, electronic resource
www.mk.gov.lv.
[13] L. Peattie. "An Idea in Good Currency and How It Grew - The Informal
Sector", World Development, Vol. 15, No 7, 1987, pp. 851-860.
[14] E. Feige. "Defining and Estimating Underground and Informal
Economies: The New Institutional Economics Approach", World
Development, Vol. 18, No 7, 1990, pp. 989-1002.
[15] State revenue services of the Republic of Latvia, National Customs
board, "Alcohol consumption report for 2007; 2008; 2009; 2010".
[16] T.F. Babor, R. Caetano, S. Casswell, G. Edwards, N. Giesbrecht, K.
Graham, J. Grube, P.Gruenewald, L. Hill, H. Holder, R. Homel, E.
Österberg, E.J. Rehm and I. Rossow. "Alcohol: No Ordinary
Commodity - Research and Public Policy", Oxford University Press,2003.
[17] "Alcohol consumption report for Latvia (2010)", Association of alcohol
producers and distributors (ARTA), 2011.
[18] "Alcohol market in Latvia (2010)", Association of Latvian alcohol
producers and distributors, 2011.
[19] Nielsen, "Report on alcohol consumption in Latvia (2007, 2008, 2009,
2010)", 2011.
[20] A. Stratei─ìuks, D. Fadejeva, V. Kaže. "Excise tax policy for Alcohol and
Cigarettes in Latvia, its impact on State revenues and the Laffer Curve". Proceedings of International Conference ÔÇÿCurrent Issues in
Management of Business and Society Development-, Riga, Latvia,
November 2011, pp. 603-612
[21] Central Statistical Bureau of the Republic of Latvia, www.csb.gov.lv, 2011.
[22] A. Stratei─ìuks, V. Kaže, R. ┼ákapars. "Influence of the increase in strong
alcohol excise tax on the state revenues in Latvia", Conference
proceedings: Current issues in management of business and society
development -2011, Riga, Latvia, May 2011, pp. 709-715.
@article{"International Journal of Business, Human and Social Sciences:60225", author = "A. Strateičuks and V. Kaže and R. Škapars", title = "Impact of Changes in Excise Tax Rate for Strong Alcohol on Consumption and State Revenues in Latvia", abstract = "State tax revenues in most countries started to decrease during the recession. Government of Latvia decided to compensate the decline by increasing rates of several taxes including excise tax on strong alcohol. The total increase in 2009 constituted 42% and the rate increased from 896€ to 1 266€ for 100l of absolute alcohol. Since then this has had a negative impact on consumption volumes and the split between legal and illegal market. The legal alcohol sales decreased by almost 50% (by volume), consequentially having negative effect on the State revenues from VAT and excise tax. Estimated results for 2010 are indicating 54 million € decrease in VAT, excise tax and other taxes versus 2008 (excise tax -19 million €, VAT -30 million €, other taxes -5 million €). The paper aims to analyze impact of the increase in excise tax on consumption patterns, State revenues and competitiveness of the local companies to draw up proposals for the state authorities regarding more effective tax policies. The analysis reveals a relationship between excise tax rate, illegal alcohol market and State revenues. The results can be used to improve excise tax system and effectiveness in Latvia.
", keywords = "State revenues, alcohol market, excise tax,
competitiveness, consumption.", volume = "6", number = "4", pages = "618-4", }
