Cap on Estonia's Highest Workforce Tax Would Be No Wonder Drug, Says Ligi

Jürgen Ligi Photo: Postimees/Scanpix
1/20/2014 11:42 AM
Category: Economy

Commenting on Latvia's recent reinstatement of a ceiling on social tax, Estonia's finance minister, Jürgen Ligi, said that Estonia has not ruled out the idea, but currently it would not justify itself.

Ligi told uudised.err.ee on Saturday that a cap on the tax, currently assessed at 33 percent of gross salary, should not be overrated as a policy or completely ruled out.

Latvia reinstated a ceiling which applies to high gross monthly salaries on January 1, hoping to attract high-paying jobs, including management positions. The cap means that social tax will only be assessed on the portion of the salary exceeding the cut-off of around 3,900 euros, and the rest of the salary will be social tax exempt, although income tax rates will still apply.

Ranno Tingas, a partner at Ernst & Young Baltic, told Äripäev last week that Latvia's move could hurt Estonia's competitiveness, as bigger companies will opt to set up their Baltic offices in Riga, not Tallinn.

Ligi said that the scheme's benefits do not outweigh the costs during the current lean times. He said the state is backing an Enterprise Estonia fund that pays between 50 to 70 percent of the salary of development staff for three years at expanding Estonian companies.

Latvian tax rates are higher than in Estonia, Ligi said. He pointed to total social insurance contributions in Latvia being 34.09 percent compared to Estonia's social tax of 33 percent. VAT is 21 percent compared to 20 percent. And income tax is 24 percent compared to Estonia's 21 percent. Ligi added that Latvia also has a tax on vehicles and real estate.


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