Riigikogu deliberated changing tax policy as a matter of significant national importance

Presentations were made by Member of the Riigikogu, former Minister of Finance and Director General of the Tax Board Aivar Sõerd, entrepreneur Ruth Oltjer, and tax expert Hannes Udde.

Member of the Riigikogu Aivar Sõerd began his report with the latest Tax Competitiveness Index of OECD member states compiled by the US think tank Tax Foundation, where Estonia ranked at the top for the ninth year running. “Estonia’s tax code stands out positively with its simplicity and uniformity. The think tank also highlights that Estonia’s tax system supports economic growth and favours investments,” Sõerd said, adding that Estonia’s tax code was really not in need of a fundamental change or an overhaul. “However, no tax code is or will be absolutely perfect. All well-functioning tax systems need to be analysed regularly and reshaped in case of need to adjust to changes in the economic environment,” he explained.

Sõerd listed the weak points of the Estonian tax system, which included hiding the actual employment relationships under the cover of private limited companies but also the tax exempt income system from 2018 which made the tax exemption rate of tax payers dependent of their annual incomes. “The core element of this tax system is the income range of EUR 1,200–2,100, where the tax exempt income starts to drop abruptly, reaching zero at the EUR 2,100. I very much believe that this system does not suit Estonia because our salaries grow fast, incomes grow fast, and also the inflation has grown fast. Yet the EUR 1,200–2,100 range has been fixed in the law. This range, which has also been called “tax hump”, has remained unchanged for six years although as incomes grow, more people each year are moving into the higher taxation zone,” he said. “Take teachers’ salaries, for example. The average pay of a teacher rises to EUR 2,048 this year; but with this amount, the tax exempt amount is no longer EUR 654 but only EUR 38 because the tax hump formula swallows up most of it.”

The founder of the pharmaceutical company Chemi-Pharm Ruth Oltjer spoke on behalf of industrial companies. She described the situation as a roller-coaster ride where the key words are the war, rise in the prices of raw materials, interruption of the earlier supply chains, and subsidies paid to companies by European countries, which weakens the position of Estonian businesses compared to those from Germany or the UK, for example. Oltjer emphasised the importance of a healthy industrial sector, as 80–90 % of Estonia’s GDP rests on export, which is turn comes mostly from our processing industry companies. 

“Estonian entrepreneurs see our taxes as fair, which is why businesses are not taken out of Estonia. It is easy to pay taxes, but also to levy these. As a result, the tax revenue remains in Estonia. I do not feel that the current tax system is in any way harmful for Estonia’s business community or the state as a whole,” she affirmed. Oltjer underlined the “Don’t play with taxes” principle which is fundamental in tax systems. “Changing taxes has such a profound impact on businesses that if this step is taken, it should be announced at least six months ahead, or even better – a year,” she said.

Estonia’s tax burden is 34%, or at the level of Central European countries. “I see no way of increasing this tax burden in any way,” she said, adding that she also struggled to see room for increasing the income tax of businesses. Oltjer also declared herself a proponent of eliminating fringe benefit taxes on sports and health expenses, and highlighted the boosting of research and development activities as particularly important.

The third presentation was made by tax expert Hannes Udde. During the debate, Reili Rand (Social Democratic Party), Jaak Aab (Centre Party), Heiki Hepner (Isamaa), Maris Lauri (Reform Party), Andres Sutt, Siim Kallas (Reform party), and Tarmo Kruusimäe (Isamaa) took the floor.

Verbatim record of the sitting (in Estonian)

Photo gallery of the sitting

The video recording of the sitting will be available to watch later on the Riigikogu YouTube channel.

(Please note that the recording will be uploaded with a delay.)

Riigikogu Press Service
Maris Meiessaar
Phone: +372 631 6353, +372 5558 3993
E-mail maris.meiessaar@riigikogu.ee
Questions press@riigikogu.ee

Link uudisele: Riigikogu deliberated changing tax policy as a matter of significant national importance

Source: Parliament of Estonia