Estonia: Bills on tax amendments passed the first reading in the Riigikogu

NordenBladet — Amendments relating to the Income Tax Act and the Social Tax Act were on the agenda for today’s plenary sitting of the Riigikogu. Both Bills passed the first reading.

The Bill on Amendments to the Income Tax Act (14 SE), initiated by the Estonian Reform Party Faction, is intended to exempt all pensions from income tax to the extent of average old-age pension.

The explanatory memorandum notes that such an amendment will also extend to survivor’s pension, and to working pensioners. The amendment covers payments from all pillars of the pension system.

According to the Bill, the Government will establish by its Regulation the procedure for calculating the average old-age pension in order to ensure that average old-age pension will be exempt from income tax monthly.

According to the data of the Social Insurance Board, the average old-age pension is 483 euro per month as of 1 April 2019. The next regular indexation of pensions is due in the first quarter of 2020.

Jürgen Ligi (Reform Party) took the floor during the debate.

The Bill on Amendments to § 7 of the Social Tax Act (42 SE), initiated by the Social Democratic Party Faction, is intended to lower the social tax rate to 13 per cent for the contributions that the employer makes to the employee’s pension fund. At the same time, the lower rate would apply to contributions that do not exceed the income tax exemption limit provided for in the Income Tax Act.

Under the current Social Tax Act, contributions made to an occupational pension fund are subject to a 33 per cent social tax. The Bill is intended to motivate employers to make larger-scale contributions to the voluntary pension insurance of the employee and thereby also to prompt employees to save additionally for their pension.

An occupational pension fund is a voluntary employee pension fund where contributions can be made for employees, public servants, and members of the management and control bodies of legal persons. According to the Income Tax Act, such amounts must not exceed 15 per cent of the gross earnings of the person in a calendar year or 6000 euro.

During the debate, Helmen Kütt (Social Democratic Party) and Jürgen Ligi (Reform Party) took the floor.

Source: Parliament of Estonia