New Year brings tough tax hike for Estonia

  • 2009-01-07
  • Staff and wire reports
TALLINN - Several changes to the Estonian tax code have taken effect as of the beginning of the year, drawing sharp criticism from local press.
The Estonian-language daily Postimees wrote that the tax hike will have a negative effect on people's income and will ultimately hurt the country's economy. Moreover, the daily said that suspending the plan to cut the individual income tax rate from 21 to 20 percent in 2009 would break the Reform Party's election promise to eventually reduce the tax rate to 18 percent.

The minimum tax-deductible amount will be left unchanged at 2,250 kroons (143.8 euros) in spite of election promises to increase it to 2,500 kroons. This means that a person who earns 10,000 kroons a month will lose 93 kroons a month.

The ruling coalition defended the decision, saying that the current tax reform system needs to be changed.
"The tax reform as it is being implemented in Estonia for several years has not made Estonians happier or the economy richer. We should now agree not to cut taxes further until adopting the euro," said Eiki Nestor, a leading member of the Social Democratic party.
Finance Ministry representatives said that the most significant change is the introduction of an advance payment account which will simplify life for both taxpayers and tax collectors.

NUTS AND BOLTS
From January, the state will no longer pay a child benefit to parents who also receive parental benefits. Until now the state paid 600 kroons per child until the age of 1.5 years and 300 kroons until the age of 3.
Although it has been possible only for a year, from this month, fathers of newborn babies will no longer be able to take a 10-day paid leave during which they received average wages.

Moreover, the state will no longer pay a dental benefit of 300 kroons a year, although it does not apply to pregnant women and mothers of children who are younger than one year of age.
The new amended VAT law will increase the VAT for medicine, newspapers and magazines from 5 percent to 9 percent. From July VAT on accommodation services, concert and theatre tickets and funeral services will increase to 19 percent.

The fee payable for ordering an electronic ID card will go up from 150 kroons to 250 kroons. The fee for issuing a time-fixed or long-term residence permit will increase from 750 kroons to 1,000 kroons. The cost of reviewing a visa application will be doubled to 300 kroons.
Court fees for filing a claim in administrative court will double in average.
Several tax rates will stay at this year's level. The income tax rate of 21 percent will also be in effect next year and the tax-exempt income will remain at 2,250 kroons a month.

As to corporate income tax, the state is not going to switch to taxation on an annual basis but will carry on with the existing system. All excise tax rates will also remain unchanged.
Electricity will cost an average household in Estonia 23 kroons a month more than at the end of 2008.