President Toomas Hendrik Ilves has blocked an amendment to the VAT law - which would require all transactions greater than 1,000 euros to be declared - on the grounds that it is unconstitutional.
Opponents of the amendment, including the Estonian Association of SMEs, say it threatens business secrets, increases red tape, and does little to further its goal - combating tax fraud, reported uudised.err.ee.
Ilves said there is no evidence that the proposed restriction on business freedom would signficantly crack down on tax evasion, and that there are other ways to diminish the hole in VAT receipts. He also called on Parliament to improve inclusion of businesses, municipalities and citizen groups in the policy-making process.
"Burdening all businesses with additional costs and obligations and creating a database containing almost all of Estonia's business secrets cannot be justified with a hypothetical, unproven conjecture that the tax hole would diminish," Ilves said.
"Such an intensive restriction on basic rights can only be seen as constitutional if analysis of the various types and examples of VAT fraud can prove that current schemes to hide revenue and to defraud the state of VAT would, in the conditions of the regulation, become either impossible or significantly easier to discover, and that they cannot quickly be replaced with new effective fraud schemes," Ilves said.
Finance Minister Jürgen Ligi criticized Ilves's decision, saying tax reporting must improve and that the amendment was in the public interest.
"But today's news shows one again that Estonia is developing in a direction where group egoism is considered noble and public interest depraved, where nothing is demanded of the lobby groups' arguments compared with what is demanded from those standing for the interests of society," Ligi told Postimees.