Latvia's New Social Tax Cap Could Hurt Estonia's Competitiveness, Says Expert ({{commentsTotal}})

Source: Photo: Postimees/Scanpix

The recent reinstatement of a social tax ceiling in Latvia could draw larger businesses away from Estonia, said Ranno Tingas, a partner at Ernst & Young Baltic.

Tingas told Äripäev in an interview today that the cap, which came into effect on January 1 and applies to those whose gross monthly salaries are 3,900 and over, could attract high-paying jobs, including management positions, to Riga at the expense of Tallinn and Vilnius.

Tingas said that Latvia has a number of other business incentives such as a lower income tax on dividends taken from companies (15 percent, compared with 21 percent in Estonia) and exemptions on business-to-business share sales.

Speaking about introducing a similar social tax ceiling in Estonia, Tingas said that the ruling coalition has toyed with the idea, but seemed to be scared of the potential effect on budget revenues.

But Tingas said the indirect benefits would be greater, as the change would send a message to neighboring countries that Estonia is a suitable place for high-paying jobs. He said that a social tax cap would allow Estonian companies to better keep hold of talent and would curb the practice of setting up companies just to collect dividends rather than paying out salaries.