Ansip backtracks on tax forecast

  • 2007-08-29
  • From wire reports
TALLINN - Two Cabinet officials have stated that the government doesn't intend to either raise or lower the overall tax burden in Estonia despite contradictory forecasts from the Finance Ministry released over the past four months.
On Aug. 22 the ministry published a new forecast after the recent passage of a number of excise taxes, showing that there will not be a fall in the tax burden over the next five years.
According to the ministry, the overall tax burden in 2007 will amount to 32.6 percent of gross domestic product, 1.5 percentage points higher compared with the previous forecast released by the government in May. By 2009 the tax burden will rise to 33.3 percent and will fall back to 32.6 percent in 2011, the Finance Ministry said.

Countering criticism on Aug. 23, Prime Minister Andrus Ansip defended the forecast and stressed that the current ruling coalition had not promised to lower the tax burden.
"We agreed in the coalition that we would not raise the general tax burden, but we do not want to make the state much thinner than it is. We will keep the general tax burden at the level where it is at present," Ansip told reporters.
In May, however, Ansip said this year's tax burden would be 31.1 percent of GDP, it would fall to 30 percent by 2009, 29.5 percent by 2010 and 28.8 percent of GDP by 2011. "So that the general tax burden is in a very clear falling trend in the four-year period," Ansip was quoted as saying at the time.
Estonia's economy was the second fastest growing in the EU last year 's behind Latvia 's but is currently undergoing a significant slowdown, or soft-landing, with second-quarter GDP growth amounting to 7.3 percent, down from 9.8 percent in the first quarter.

The Economy Ministry announced Aug. 22 that GDP growth would amount to 8.1 percent, a revised forecast based on the new excise taxes, while the Finance Ministry said the same day that annual inflation would reach 6.1 percent, up from 4.9 percent in the previous forecast.
The government recently decided to increase excise taxes on items such as alcohol and cigarettes, which it must do to bring them in line with EU levels, and to raise them once and dramatically in order to face the inflationary consequences now rather than later.
This, it is hoped, will allow Estonia to join the eurozone at the earliest possible date.
Meanwhile, Economic Affairs Minister Juhan Parts tried to assure investors that the government did not intend to change the corporate tax system. Speaking at the British-Estonian trade chamber, Parts said Aug. 24 that the present system could be in contradiction with the European Commission's vision, but the government still wouldn't change the system.

"We will lower the tax rate in the coming years, but the legislative basis will remain the same," Parts said. "It is our view that no income tax should be taken from profit. Reinvested profit will remain tax-free. There is no contradiction with EU directives here."
Parts expressed the hope that the draft laws in the Finance Ministry would be accepted by the European Commission. The amendments have been criticized by former Finance Minister Aivar Soerd, who said they were "cosmetic" and that the government might have to defend them in the European Court.
On acceding to the EU in 2004, Estonia was obliged to bring its system of corporate taxation in line with the EU mother and subsidiary companies' directive by 2009.

According to a previous government decision, Estonia will give up a capital-gains tax levied at the moment of distribution and switch to an annual system of taxing profits.
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