Government tax policy seems random

Lehis said it was probably feared the tax's considerable area of effect would cost ruling parties votes.

Lehis also criticized the government's recent idea: a new 14-percent income tax obligation for banks. The prepaid portion of income tax would be taken into account when the bank pays dividends later. Sester said the government opted for this solution as it renders tax revenue from banks more stable, fits banking sector business logic, and considers the need for financial stability.

Banking tax at the expense of the future

Tax expert Lehis said the system constitutes borrowing from future tax revenue – banks are forced to pay income tax in advance.

“This means that the bank will not have to pay income tax on dividends because it has already paid it. In other words, the government wants to start spending future governments' tax revenue,” Lehis said.

This might be questionable from a constitutional point of view as it translates into a restriction of democracy and the right to vote: the next Riigikogu and government will have fewer options to change policy as the previous composition has spent some of the election period's revenue that will considerably restrict the freedom of drafting the state budget, Lehis found.

“It might also be a breach of the principle of equal treatment when a single area of enterprise, in this case the financial sector, and not even the entire sector, is forced to pay taxes differently,” the head of the taxpayers' organization explained.

Estonia's largest commercial banks were reluctant to comment on the new income tax system individually and passed the ball to the Estonian Banking Association. “The government's desire to find additional ways of paying for its policies is understandable; however, banks are clearly not overjoyed when it comes to this new tax obligation. That said, prepaid income tax is the least burdensome potential solution that comes with the fewest risks for the sector while providing a necessary contribution to the state budget,” said head of the association Katrin Talihärm.

Deficit looms

Even though experts doubt whether the new government's revenue can cover its expenses, Sester said at yesterday's government press conference that next year's budget is set and that everything in  it now fits. The minister said the cabinet has agreed the budget will see a deficit of 0.5 percent in the next two years, meaning the government can make use of reserves.

Sester also said the government will not use reserves from previous periods to cover day-to-day expenses or fulfill new promises but only for strategic long-term investments, like new roads, renovation of the Linnahall building, and development of the broadband network.

The finance minister is convinced the government's tax policy is integral and aimed at economic growth. “Tax policy changes will render the tax structure more friendly toward economic growth: reduce taxes on income and hike consumption taxes,” Sester said.

The government also agreed on 2018-2021 fiscal strategy principles that form the foundation of the state's financial plans for the next four years. Prime Minister Jüri Ratas (Center Party) said the government's four-year plan aims at four major goals: population growth, improved social well-being and cohesion, exiting the economic standstill, and strengthening the country's security.

Lennart Ruuda
If you notice an error, highlight the text you want and press Ctrl + Enter to report it to the editor
No rates yet
I recommend
No recommendations yet


Post your comment to communicate and discuss this article.

Chairman of the Estonian Chamber of Commerce and Industry and one of the owners of construction group Nordecon, Toomas Luman, finds that a prime ministerial candidate should first and foremost be able to answer the question of what will become of the demographic crisis in Estonia. The businessman sees controlled introduction of foreign labor as the solution. A digital construction cluster was created in Estonia a few years back to bring innovation to the s...
Last year saw 27,125 registered offenses, up 0.5 percent from the year before. Violent crime was up by 12 percent to 8,249 offenses. PHOTO: Dominic Lipinski / PA Wire / Press Association Images / Scanpix Growth was biggest for domestic violence – the police launched criminal proceedings in 3,607 cases that constitutes an increase of more than one-third – annual growth of 37 percent from 2,632 cases in 2017. At the same time, reports of domestic violence we...
TALLINN - Ahead of the withdrawal of the United Kingdom from the European Union, tens of thousands of British citizens have chosen the citizenship of some other country, but only one Brit has recently chosen an Estonian citizenship. Spokespeople for the Ministry of the Interior told BNS that only one British citizen submitted an application for Estonian citizenship last year and the applicant was also granted the citizenship. Before that, no Brits had soug...
TALLINN - Experts from Finland, Denmark, Norway and the Netherlands highlighted the importance of decentralization and granting local governments greater decision-making powers at a conference titled "Strong local government -- strong state?" in Tallinn on Wednesday.  All Nordic countries have chosen a model granting local governments significant decision-making powers, thus the central government does not prescribe how local governments are to fulfill the...
The language learning application Drops by game developer Planb Labs, established in Estonia by Hungarian founders, was named Google Play's best app of 2018. With the number of downloads surpassing 10 million, Drops was named Google's app of the year as the revenue of Planb Labs, a company registered in Estonia, increased fivefold, CNBC said. The developer's revenue grew from €335,000 in 2017 to €1.7 million in 2018. The company's shareholders include Hung...
TALLINN - The Estonian Health Board has banned the distribution of chlorine dioxide, also marketed as the Miracle Mineral Supplement (MMS), the A-component of an unused product, meaning the sodium chlorite solution, must be taken to a hazardous waste collection facility. Ester Opik, head of the Health Board's North regional department, said that the banning of the distribution of the product was caused by the fact that MMS, distributed as a cosmetics produ...
Nature cannot abide a vacancy, as the saying goes. If just one year ago, Estonia was battling the sale of MMS and the practice of giving it to children, a new “miracle cure” called Advanced TRS has appeared on the market now. Even though the make-up of the substance is different, the promise to cure autism and cleanse the body of heavy metals, which kind of extreme detox is accompanied by severe side-effects, sounds all too familiar. TRS is recommended to...
Allied NATO battalions will soon mark two years serving in the Baltics. They have worked better than expected but would need prepositioned heavy weaponry and a functional contingency plan in case of a crisis, a report by the International Center for Defense and Security (ICDS) finds. “We do not know how Russia would have acted had we not welcomed allies in Estonia, Latvia, Lithuania and Poland in 2017. I’m afraid they would have tested our resolve,” one of...
The time of filing income tax returns is nearly upon us. The new income tax system, in effect since last year, will obligate many women who went on maternity leave toward the end of the year to make additional income tax payments, while those who give birth in the middle or at the beginning of the year have no such obligation. What this means is that some women will owe the state simply for giving birth “at the wrong time”. Laura Roop, who went on maternit...