Kallas: Push for the abolishment of corporate tax in Europe (1)

Siim Kallas (AFP/Scanpix)
1/27/2016 2:37 PM
Category: Economy

Former EU commissioner Siim Kallas criticized the Government’s bland preparation program for its 2018 European Council presidency in an opinion piece on Sunday.

Kallas said that Estonia’s program for its European Council presidency in 2018 was “interesting to nobody.”

In his opinion, the program, which the government expects to require thousands of meetings as well as hundreds of different projects, doesn't build on a bigger idea, but instead focuses on what Estonia is already well known for.

Instead of concentrating on unified markets and information and communication technology, it should push for greater change.

Kallas pointed out that one of the biggest issues that still wait for European consolidation is taxation. He suggested that Estonia could advocate the abolishment of taxing reinvested corporate profits.

In Estonia this has been practised for years. Corporate profits are only taxed if they are paid out in the form of dividends. The foremost aim of this policy is to encourage companies to reinvest their profits in new ventures. In the past, it was also thought to attract foreign investment, but this perception has shifted since wages have increased and the overall cost of labour has gone up.

Critics of the current system usually point to the fact that the state has to compensate for the revenue it misses out on this way by levying other taxes and duties.

A system like this necessitates a high VAT rate as well as a current total in Estonia of more than 37 percent of a company’s spending on any one employee going directly to the state in the form of social and income tax.

In plenty of EU member states, corporate tax also functions as an economic support mechanism for regions that are less well off. Adjusting corporate tax depending on location gives a government the means of attracting investment by offering companies tax breaks if they invest in certain areas.

If corporate taxation were to be abolished across the EU, these mechanisms would be lost, which certainly makes Kallas' suggestion controversial enough to stir up a debate.

Dario Cavegn

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