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PRESS RELEASE: 05.08.2008 VAT reductions on food and drink do not apply to all beverages Beer tax increases should be avoided to prevent inflationThe increases in alcohol taxation at the beginning of 2008 raised inflation in Finland. Inflation is currently the Finnish economy’s major problem and a burden on competitiveness. The Ministry of Finance has proposed a general reduction in the VAT base rate on food and drink, and this is the correct solution to check inflation. However, it does not apply to all food and drink prices, as the VAT on alcoholic beverages is 22 per cent. Due to increased energy, raw material and labour costs, there is still pressure to raise the price of beer, cider and long drinks. In addition to the proposed changes in VAT, the government should refrain from increases in alcohol taxation in order to control inflation. A 10 per cent increase in excise duty on mild alcoholic beverages came into force at the beginning of 2008. This has once again raised Finland’s beer tax to the joint highest in the European Union alongside the UK. In addition to the rise in energy, raw material and labour costs, the tax hike on mild alcoholic beverages produced by breweries is another factor that has contributed to increased beer, cider and long drink prices. The Alcohol Act’s new price advertising restrictions have reduced price competition on beer, which has also contributed to a rise in the price level. Published information on travellers’ private imports from Estonia during early 2008 indicates that imports of brewery beverages have once again taken an upward swing. In spite of tax rises in Estonia this year, the difference between Finnish and Estonian beer tax has increased again during 2008. Passenger shipping companies have significantly increased their transport capacity between Helsinki and Tallinn. “This will enable extremely rapid growth in private imports by travellers if consumers feel that the Finnish price level is too high for their liking,” says Timo Jaatinen, Managing Director of the Federation of the Brewing and Soft Drinks Industry. Mild alcoholic brewery beverages are still facing general price increase pressures, and these should not be compounded with new tax increases. Further increases in alcohol taxation will heighten inflation in Finland, and inflation is currently the Finnish economy’s major problem and a burden on competitiveness. The government has made a welcome proposal for a general reduction in the VAT base rate on food and drink from 17 to 12 per cent. However, this does not affect mild alcoholic beverages, which are taxed at 22 per cent. “The government should also consider a moderate reduction in beer tax to control Finnish inflation and traveller imports,” says Jaatinen. Additional information: Managing Director Timo Jaatinen, tel. +358 (0)9 1488 71 Communications Manager Katri Tuulensuu, tel. +358 (0)9 1488 7601, GSM +358 (0)40 777 1938
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