TALLINN - The Estonian government is considering cutting, or even abolishing, an income tax exemption on mortgage loan interest, the daily Postimees reported.
Although the government has not yet formed an official opinion on abolishing the exemption, Prime Minister Andrus Ansip pointed out that in Finland, for instance, state supported exemptions led to a real estate bubble that burst.
"All tax concessions need to be reviewed, appraised for whether they've served the purpose," Ansip said.
At present the tax board returns 24 percent of interest paid to banks on these types of loans. If the exemption of interest from income tax is abolished, those who have bought a new home stand to lose on average a sum equal to a one-month loan payment annually.
Bankers believe that abolishing tax relief on interest will not curb borrowing.
"This is an unpopular decision," Kersti Arro, development and analysis manager at Hansapank, said. "But it won't significantly impact borrowing. I don't believe people would start borrowing less to build a home of their own."
The daily reported that the government might do away with several value-added tax differences as well.