Impact of introducing unhealthy products excise duty on cross border trade and gain low-income persons
2016
Juruss, M., Riga Technical Univ. (Latvia) | Seile, E., Riga Technical Univ. (Latvia)
The Ministry of Health has made a proposal to place excise duty on several grocery products that the Ministry of Health consider “unhealthy”. The duty would allow to capitalize on the consumption of these products as well as limiting the consumption itself. However, this excise duty can cause several complications such as financial pressure on not-well-off households. Placing the excise duty on products would consequently increase the price of the product, which would in turn increase the sales revenue of cross border trade. Recent studies have discovered that the consumer react to increased prices of the domestic product, by purchasing the goods in other countries to minimize his/her expenditures. Since the prices of grocery products are already higher than in the neighbouring countries - Lithuania and in specific cases Estonia, this increase in the price could cause the shopping abroad to become a really hot topic. Since the excise duty is a custom administrated tax, there has to be extra control on Russian and Belarus borders, as well as informing the general public about which products the excise duty has been imposed on. If the imported product exceeds the allowed quantity, these products should be taxed separately. Since the excise duty is a consumption tax, it will directly affect lower income citizens, as they spend the majority of their income on grocery products. The process will expand the income inequality in Latvia even more, despite the fact that it is already one of the highest in the European Union.
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