ICELAND. The raising of taxes on alcohol from 1 January – including on products sold in duty free shops – has sparked industry concern in Iceland about the competitiveness of the travel retail channel.
The move to lift taxation on alcohol is among the revenue-raising measures in the government’s 2023 budget, drafted last September, which came into force at the start of the year.
Until now, wines & spirits sold in duty free attracted alcohol tax at a rate of around 10%, based on the strength of the product; under the budget, that level has increased sharply.
Under figures from the Iceland Federation of Trade posted at the time of the draft budget last year (reported by respected local media Iceland Review), a litre of spirits at 40% ABV sold in duty free in 2022 attracted ISK650.80 (US$4.55) in alcohol tax. The same item would now attract alcohol tax of ISK1,752.30 (US$12.25), around 2.7 times the previous rate.
Representing national airports company Isavia, Director Commercial Thorunn Marinósdóttir told The Moodie Davitt Report that the move was “very disappointing” and that it came despite pressure from the travel and aviation sector, including Isavia and Icelandair.
Isavia continues to evaluate ways to mitigate the impact on the business, but Marinósdóttir said that it will likely affect arrivals duty free heavily, where returning nationals are the main customer base. “The increase hits the strongest liquor hardest [as these] bear the highest taxes, so we expect decreased business”.
State-owned Duty Free Iceland has previously been competitive on liquor pricing compared to regional travel retail peers, according to the airport company, but this could change with the increase. It remains too early to assess how deeply it will affect the business, said Marinósdóttir.
According to Iceland Review, the tax rise on alcohol in the budget should deliver around ISK1.64 billion (US$11.7 million) in additional income for the treasury, with total income from alcohol taxes for 2023 projected at around ISK 25 billion (US$175 million). ✈
