Estonian Excise Policy on the Threshold of the European Union (based on cigarette Policy)

The purpose of this paper is to evaluate Estonian excise policy concerning cigarettes in the following way: to compare the price level and tax rates between Estonia and other countries (the EU, the EU candidate states, EFTA) and give an overview of excise policy in terms of the European Union (EU). The influence of Estonian excise policy on the price level, consumption, legal/illegal market and the state budget are presented. Estonia as an applicant country of the EU has to harmonize its tax policy (including excise duties). The harmonization process of excise duties will be finished upon accession to the EU (01.05.2004), except with tobacco products. The latter group has a transition period until 2010; this is due to the wide presence of illegal goods in Estonia. Therefore, it is important to evaluate changes in excise policy concerning the requirements of the EU. The following paper analyses different possibilities in reaching these requirements and their influence on the Estonian economy. Changes in tobacco tax rates mostly influence the cigarette market, which are the most consumed tobacco product in Estonia, therefore the paper is especially concentrated on cigarettes.