Cider makers demand tax deduction

Breweries producing less than 600,000 liters of beer per year enjoy an important tax deduction in Estonia: they have to pay only half of the excise tax to the state. The others – small-scale makers of cider, wine, vodka and gin – have no such right.

Sulev Nõmmann, owner of Siidrikoda OÜ in Põlva County, who has managed to get his carbonized apple juices and ciders to Estonia’s shops, cafes and  restaurants, cannot understand why this discrimination and market distortion can exist.

He explained that the alcohol content of craft beer and cider is more or less equal. These products are mainly consumed by the same type of clients – hipsters and connoisseurs who rate taste higher than amount.

“But natural cider is more complicated to make, since the raw material is apple juice, which is available only seasonally, unlike brewing,” Nõmmann said. He added that cider makers have planted apple orchards which will yield harvest only in 3-4 years. Planting and maintaining orchards, picking the apples, storing and processing them take a lot of time and money.

Cider is better for health than beer?

Nõmmann believes that cider makers should thus be preferred and receive equal or even greater tax deductions than those enjoyed by brewers. But the “massive army of brewers” is calling for even larger tax deductions.

“We are a minority and our voice is weaker,” he complained.

When asked what they have done to solve the problem, the cider maker answered that they have joined the Estonian Association of Small Brewers, but the number of breweries is overwhelming, and the interests of cider makers receive little attention.

“No cider maker belongs to the management board of the association. We have been explaining the unfair treatment at various presentations to all kinds of audience.”

The other local cider maker, Erki Niitlaan, board member of City Cider OÜ, which uses the Mull trade mark, also said that promoting cider production via taxation policy would be logical. “We are using Estonian raw material and add value to a part of it which might otherwise be wasted – apples unfit for the table,” he said.  They cooperate with a dozen farms, which sell the firm apples or apple juice.

“Although it is not proper to mention healthiness when discussing alcoholic drinks, cider is essentially better for your health than beer. It is made of natural juice and contains all the goodness you get from apples,” Niitlaan added.

He said that a 50-percent tax deduction would be a huge help for the local cider makers.

Besides the expenses on raw materials, their production expenses are also higher than  those of large producers. Halving the excise tax would thus significantly reduce their expenses and help them compete more efficiently with mass production.

Alvar Roosimaa, owner of Jaanihanso Siidrivabrik, said that he is too busy working to have extra time for politics and lobbying.

Yet any support would be highly useful. “Be it the production of the first 50,000 liters or hiring first five workers,”

Estonia’s hands are tied

But cider makers face yet another tax problem besides the excise deduction.

While the excise tax on beer is calculated according to ethanol content per liter, the taxation of cider is much tougher: everything with ethanol content below six percent is taxed 0.84 euros per liter, while ethanol content above six percent means 1.47 euros excise per same amount. This means that the makers of stronger cider have to face a steep excise hike, unlike brewers.

The Ministry of Finance explained that granting excise deduction to small alcohol producers does not depend on them; this is regulated by the European Union. An amendment to the directive enabling the member states to reduce taxes imposed on small cider makers is currently being debated, the ministry spokesman Ott Heinapuu explained.

He said that Estonia has supported a broader approach to support, meaning that the raw material of cider should not be limited to apple and pear but that the deductions should be extended to cover all fermented drinks made of any fruits or berries.

If the EU should decide granting greater freedom to member states, the Ministry of Finance promises to consider reduced taxation of cider and similar beverages. But it would not happen before 2020.

“The traditions of producing and consuming alcohol differ greatly in the member states. Some countries are wine producers and others brew beer and decisions are reached by negotiating,” Heinapuu said.

Craft drink producers receive no deductions

Although the producers of strong liquor would also like excise deduction, they face a European Union directive, which permits deductions only in case of annual production volume below 1,000 liters. This is a very small amount.

This is why the Ministry of Finance stated that establishing a reduced excise level would not be practical. Rene Kõrve, the manager and owner of the local gin producer Distillirium, said that a tax deduction would be a great help, but he would not mind if it does not happen. He explained that launching the production of hard liquor is no easy matter. “I have done so much paperwork, met requirements, obtained an excise warehouse license, paid deposits to the state etc. If they should now relax the standards, it would make it much easier for newcomers,” he said.

But Kõrve is certain that the excise deductions to small breweries should not be increased any further. He welcomed the small breweries’ initiative and lobbying capability but said that they are already strong enough to manage without support.

“Now they are complaining that they cannot manage at 600,000 liters per year. Sorry, but you have just grown up! Now they want to push the limit still upward. Where would the limit to dotation be?” Kõrve asked. “They have plants and efficient equipment, they keep expanding and investing. Annual output of 600,000 liters is no longer small-scale production.”