EU commissioner Siim Kallas and previous economy minister Juhan Parts said at a IRL-organized tax debate on Friday that the labor tax is too high, while former Hansapank CEO Indrek Neivelt said income tax exemptions for businesses should be dropped instead.
Kallas told ETV after the debate that if some taxes are lowered, then financial cover must be found. Compared to many other nations the tax burden on Estonian employers is too high and lowering the labor tax should be considered.
Neivelt said cutting income tax exemptions for businesses would bring in a further 300 million euros to state coffers annually. He said other tax rates could be lowered as a result.
Politicians should arrive at a consensus on changing the tax system, but that will not come quickly, Part said, adding the large share of labor tax is one of the largest problems in the tax system.
Neivelt said during the debate that the world around us is changing, but the Estonian tax system is stable, adding that tax policy and economic policy go hand in hand and should not be unchangable.
Former politician and businessman Olari Taal said the tax system has remained the same for years as taxpayers and the government do not want big changes, adding that people and companies have adjusted to the system and each change creates discontent. He said state officials will stand against change as it would mean a lot of work for them.
Kallas said the VAT could be replaced by a transaction tax, as VAT exemptions have become hidden state aid.
The debate on the Estonian tax system has been a simmering topic for the past years, as low growth has had politicians and the private sector searching for changes, including in the tax system. However, no large changes has made it into the form of a bill, let alone legislation. Income tax is set to drop by one percentage point at the turn of the year.
For a gross monthly salary of 1,000 euros, which is close to the national average, the employer pays a total of 1,340 euros, of which 330 euros is social tax, 30 euros unemployment insurance, 20 euros pension fund, and 171.36 euros income tax, leaving the employee with 788.64 euros, or less than 60 percent of the total cost to the employer.