Estonian political parties are disclosing their updated views on taxation matters, less than four months before the elections.
The Center Party, led by Tallinn’s mayor Edgar Savisaar, has for years talked about the need to reject a proportional tax system and restore a progressive income tax. They are now also proposing to restore a corporate tax. The Reform Party's leader, Prime Minister Taavi Rõivas, estimates that restoring it would hamper entrepreneurial spirit and ambition.
The current corporate tax system in Estonia was introduced at the initiative of the Reform Party in 2000, when the party was in a coalition with the Social Democrats and Isamaaliit, which later merged with Res Publica to form IRL.
As it stands, earning profits in itself does not bring income tax liability for companies. It only arises when earned profit is distributed to shareholders. In case profit distributed to shareholders originates from dividends received from subsidiary company or from permanent establishment corporation has in other country, then profit distribution is tax exempt. In recent years, this model has met with increased criticism.
Kadri Simson, the leader of the Center Party’s faction at the Parliament, confirmed to ERR that the party is looking to introduce changes to both systems in case they win in the next election.
As for personal income, the Center Party is proposing higher tax, 33 percent, on salaries that exceed 2,000 euros per month. The party is proposing to lower the social tax, but restore the corporate tax, at the rate of 12 percent.
Simson added that the Center Party would also evaluate how the VAT and excise taxes are currently charged.
“We propose that, for example, the commodities for which pricing is under the state control, such as heating, the value-added tax should be set lower, because heating homes is not a luxury in Estonia and should not be punished by the major taxes. Heating, principle food commodities and cultural events should be taxed less VAT,” Simson said.
In one form or another, the progressive income tax would be introduced by three of the four parliamentary parties. The Reform Party is the only one to still stand for the current system, and maintains that both the progressive tax and corporate income tax are unnecessary.
"If we will charge a higher rate on higher-income people, it also means that, for example, doctors and other highly professional people who have been studying a very long time to get themselves to higher salary level, would feel unmotivated. For the society as a whole, there would be pressure to create lower income jobs, rather than higher-income ones. I do want this kind of future for Estonia,” Rõivas said.
"Also, the creation of a supplementary corporation tax is not good for the economy. On the contrary - international research has shown that corporate income tax is the most regressive tax on the economic growth. In my opinion, the Center Party’s proposals would not have any positive impact on the Estonian economy, on the contrary," Rõivas added.