The land tax in Estonia will not rise by more than 10 to 15 percent a year following legislative amendments which may see a proposal launched next year and nationwide appraisals become regular in the future, Estonia's Minister of Public Administration Jaak Aab (Center) said.
The minister said 19 years have passed since the last land appraisal in Estonia and in the meantime, the estimates of the value of different land plots has changed a lot. General estimate from 2019 predicts land has become 7.2 times more expensive on average. The value of residential land has grown 8.8-fold on average, the value of profit yielding land has soared 11.6-fold and the value of commercial and production land has moved up 5.1-fold.
Aab said the estimate is based on changes in transaction values until 2018. For the planned evaluation of land, the government also possesses transaction data for 2019-2021.
The market value of land is just one component in determining the size of the land tax. The second important component is the tax rate, which is established by the local government within the limits set by law. At present the permitted maximum rates are 2 and 2.5 percent.
"I will make a proposal to the government to reduce the maximum tax rate for residential land and yard land of profit-yielding land to 0.5 percent, and to one percent of the value of land for land with other intended purposes and land parcels," Aab said.
In addition, plans will cap the annual increase at a rate ranging from 10 to 15 percent, depending on the decision of the government.
"That limit would be a standing one, applicable both to future land appraisals as well as increases in tax rates. Hence, the transition to market based land values in taxation can take place step by step. When the tax increase is dispersed over a long period of time there is no need to fear that new appraisal results will bring with them a land tax that is several times higher," Aab said.
The minister added the government definitely intends to go on with the land tax exemption for land under people's homes.
Income from land tax goes into the budget of the municipality and is used for local services, such as new and improved roads and streets, lighting, water and wastewater networks. Such investments also raise the value of the land for the landowner, the minister said.
When a municipality introduces new land tax rates, they must specify to residents what is going to be improved in the municipality with the additional proceeds.
"On the level of the ministry, we have communicated both with municipalities as well as with the Central Association of Estonian Owners. Their worries about the value of land and a possible increase in land tax can be understood. We have, however, been moving in the definitive direction from the very start that the rise in the land tax arising from the results of the appraisal will be capped. We have explained this also to them, and that course of action has satisfied them, judging by our meetings," Aab said.
The minister said their plan is to make a proposal to the government that land appraisals be conducted every four years.
"That will enable to take changes in the value of land into account in due time and seamlessly. The decision about whether to do it periodically, and if yes, then with what intervals, is to be made by the government," Aab added.
The minister said the matter is to be discussed with the other ruling coalition parties later this month, while the necessary legislative amendments are to be submitted to the government by the end of September.
In accordance with the proposal, it could be done not earlier than in 2021-2022. The impact of the move on the size of the land tax will not materialize before 2024.
Editor: Helen Wright