Financial Affairs Committee supports bill introducing de facto progressive income tax
The Riigikogu’s Financial Affairs Committee on Tuesday supported the coalition’s proposed tax changes. According to the committee’s chairman, Mihhail Stalnuhhin (Center), the decision was voted on after a heated debate. The bill proposes substantial changes to the Estonian taxation system.
The income tax rate would remain at 20%, the tax-free income share would increase by €170 to €500 a month, Stalnuhhin said. Once an individual’s declared monthly income went beyond €2,100, this wouldn’t apply anymore.
This change, though not a progressive income tax in its original form, is based on the Center Party’s elementary demand to lessen the tax burden on lower incomes. The new system would also replace tax rebates on low incomes starting 2018, Stalnuhhin added.
Increasing the tax-free amount while dropping it entirely for incomes above €2,100 a month means the de facto introduction of a progressive taxation system, which represents a paradigm shift in the Estonian system and tax philosophy introduced in the 1990s.
Tax deductions connected with children, as well as keeping the average pension tax-free, will remain the same. With the increase of the tax-free income amount, the joint tax declaration of married couples would be abolished, Stalnuhhin pointed out.
The previous government’s plan to increase value-added tax on accommodation services from 9 to 14% had been abandoned. The same applied to the plan to cut social tax by 0.5%. The main argument for this step was that the €40m annual loss the tax cut would bring won’t need to be compensated by raising taxes elsewhere.
Other changes concern excise duties on fuels. The excise hike on diesel planned for 2018 was dropped, and raising the excise rate on other fuels postponed from January to February 2017.
Following the provisions of the Center Party, the Social Democrats, and IRL’s coalition agreement, a tax on cars will be introduced. The tax will be levied every time a vehicle is entered into the state register, and also every time it changes ownership.
The rate will be pegged to cars’ carbon emissions. In case this isn’t applicable, it will be based on engine power in kilowatts.
Also planned are excise duty increases on beer, cider, and wine.
The bill’s second reading is scheduled for today Wednesday. The Financial Affairs Commission is proposing to postpone it, and instead to continue the debate over the bill in a week’s time.
Editor: Editor: Dario Cavegn