TALLINN - Estonian officials are planning to increase by a third and in some cases much more, the value of land as registered in the state's cadastre.
Critics say the resultant tax increases could make owning land an expensive hobby for the rich.
The Estonian National Land Board is re-evaluating land valuations for the first time since 1996. The move will also increase prices of land being privatized.
Cadastral land values, from which property tax levels are calculated, could increase tenfold in more prestigious locations such as the Tallinn and Parnu regions as well as in coastal regions.
Cadastral property values in the remaining 90 percent of the country will increase by just 30 percent, said Aivar Tomson, project manager at the Estonian National Land Board, which not only maintains the land cadastre but also coordinates the country's land reform.
Seaside plots on the western island of Saarema, where the most dramatic increases will occur, could increase in cadastral value 231 times.
But property owners need not panic, said Tomson. "There is only a theoretical possibility that the annual land tax will increase as much as the value of land," he said. "I believe the county will decrease the local land tax rate so that the tax hike will be around tenfold."
Heiki Kranich, Estonia's minister of environmental affairs, will approve the new market values at the end of November and send them to Parliament for approval. The local counties will then have until the end of this year to decide whether they want to decrease property tax rates, which are their main income source. Counties are obliged to set land tax at between 0.5 percent and 2 percent of a property's cadastral value.
Sulev Roos, governor of Harku county, west of Tallinn, said municipalities had little choice but to maintain land taxes as their only other income source is the national coffers. "If we decided to reduce the tax rate and asked for additional money from the state instead they would point to our low tax rate saying Œyou did not want the money.'"
The 2 million kroons ($118,000) Harku county currently earns in land tax revenue would reach 7 million kroons if the present 1.2 percent tax rate were maintained after the property re-evaluation. "The municipal council will probably drop the rate to 1 percent," said Roos.
Roos said the annual tax on his own 1.3 hectare property - currently 500 kroons - would increase to 8,000 kroons next year.
"I believe that most of the counties, which face steep increases in cadastral value, will decrease their tax rates," said Tomson. "Taxes should not reach the level where one has to start selling one's land because of financial difficulties."
But Maids Praks, governor of Loksa county, protested that the increases being envisaged were too great and said that across-the-board tax reductions intended to help poorer people in areas designated as high value would unfairly advantage people with large properties in low value areas. "The planned increase is out of proportion," he said. "It's clear that some residents will have to sell their homes. If we drop the tax rate in order to save poorer coastal residents from a tax hike, residents would also pay less. Local governments cannot redesignate zone areas but have to introduce joint tax rates for everyone."
Roos' response to complaints about the proposals is frank, "They should not live there if they cannot afford it," he said. There are about 500 summer cottages in his county, of which half belong to pensioners.
In the capital of Tallinn the cadastral value of residential property will increase by an average of 2.64 percent and commercial property by 1.77 percent. Cadastral values, which depend on which of 34 geographical zones in the city a property is located in, are set to multiply by 20 in areas currently designated to be of the lowest value.
According to Tomson, Tallinn municipality has discussed decreasing the tax rate to 0.9 percent or 1 percent. The Nomme region has proposed setting the tax at the lowest possible rate, 0.5 percent.
In Parnu, where the municipality currently charges the maximum possible tax rate of 2 percent, the authorities are unwilling to reduce it. The city government believes reducing tax rates is a bad solution because valuations of property in predominantly commercial areas have been based on the market value of a few unrepresentative properties. "The cadastral value should be realistic. It should take into account the city's future plans and local situation," said Taimi Vilgas, deputy mayor of the town of Parnu.
Mait Talvoja, head of the municipality's business department, also objected to what in some cases are twelvefold increases. "The present tax rate and the cadastral value, which earned the municipality 8.5 million kroons last year, were acceptable. We do not agree with the new land evaluation results."