Riigikogu passes new coalition's extensive tax changes (4)
The Riigikogu passed a bundle of tax amendments on Monday which were initiated by the new governing coalition and among other things will cancel a reduction in the social tax rate planned by the previous government, accelerate the hike in excise duties as well as introduce a new system of exemptions beginning in 2018.
The bill of amendments to the Income Tax Act and Social Tax Act passed with a 55-37 vote. There were no abstentions.
Addressing the Riigikogu on behalf of the Social Democratic Parliamentary Group, MP Kalvi Kõva said that the handling of the bill was a job done quickly as the new coalition agreement was signed less than a month ago. "If we hadn't made the changes at a rapid pace, we would have faced different criticism today: they are in power but aren't doing anything," he said.
Priit Sibul from the Pro Patria and Res Publica Union (IRL) Parliamentary Group likewise noted that some changes needed to be taken care of quickly due to the new coalition agreement. Changes introduced by the bill concern one percent of the total volume of the next year's state budget, he observed.
MP Martin Helme of the opposition Conservative People's Party of Estonia (EKRE) noted that their party does not support the bill. In his words, all the promised tax breaks as well as most tax hikes fall into 2018 and thus it was totally incomprehensible as to why they had to be pushed through in December 2016.
Free Party MP Andres Herkel stated that the bill was the biggest disappointment served up by the new government and the party would vote it down.
The opposition Reform Party did not back the bill either. MP Remo Holsmer said it would certainly make Estonia's taxation system more complex and raise the tax burden on labor.
Center MP Mihhail Stalnuhhin, however, found that if one wanted to see progress, one thing or another would inevitably have to be changed. The party group supported the bill because Estonia and the Estonian people needed it, he said.
The newly-adopted bill cancels the 0.5-percent cut in the social tax rate planned for next year, as well as an increase from 9 to 14 percent in the VAT rate on accommodation services.
The general basic income tax exemption will increase from the present 170 euros to 500 euros a month as of 2018 and the exemption for personal income of 2,100 euros a month or higher will be abolished. Tax exemptions related to children will be preserved in their present form and tax reimbursements for low income earners substituted with the higher basic exemption from 2018.
Excise duty rates on principal fuels will be cut and a hike in the diesel fuel duty planned for 2018 will be canceled. The duty rate on natural gas will increase 25 percent over 2018-2020.
The excise duty rates for low alcohol content beverages — beer, cider and wine — will be leveled off with the rates for strong alcohol. In addition, the excise duty hikes for alcohol scheduled for Jan. 1, 2017 and Jan. 1, 2018 will be postponed until February.
The deductible interest paid on a home loan will be capped at 300 euros and the tax exemption for deposit interests abolished.
The possibility for spouses to declare their income in a joint tax return will be preserved as far as home loan interests, training costs and the additional tax-free income per child are concerned.