Tax inflow of €674 million for August up 1.6 percent on year

The 'super-ministry' building in Tallinn, home of the finance ministry and several others.
The 'super-ministry' building in Tallinn, home of the finance ministry and several others. Source: Siim Lõvi /ERR

The Estonian Tax and Customs Board was paid €674.4 million in taxes for the month of August, which is 1.6 percent more than the amount paid for August 2019.

After the end of the first eight months of the year, 70.5 percent of the supplementary budget had been fulfilled. More tax revenue had been received than was expected at the time when the supplementary budget was drawn up mainly thanks to a better-than-expected labor market situation and softer economic decline. Inflow of VAT is supported by gradual recovery of the economy and a reduction in arrears, the Ministry of Finance said in a press release.

"In August, the number of employees decreased by 4.7 percent and the increase in the average pay amounted to 5.1 percent compared with the previous year. The effect of the remuneration compensation on wages ended in July. Regardless of that, the increase in the average wage in August stayed close to the level for July," Rait Kiveste, analyst at the fiscal policy department of the Ministry of Finance, said.

The increase in payroll was driven in August by healthcare with a rise of 11.5 percent and, of the smaller sectors, by information and communications with an increase of 9.6 percent.

Of social tax, 2.2 percent more was paid in August than in the same month last year. Although the remuneration compensation measure ended, the dynamics in intake was positive, which according to Kiveste may have resulted from people working in the healthcare and education sectors taking their annual vacation later. The inflow of personal income tax grew 6.9 percent year on year.

Of the income tax on dividends levied at a rate of 7 percent, €15.6 million was received in the first eight months of the year, €6.7 million more than in the same period in 2019. Receipts of the income tax on legal persons grew 8.8 percent, underpinned by income tax on the distributed profit paid by state companies in the amount of €13.8 million. Income tax on  dividends of the private sector declined by €10 million.

The analyst pointed out that the reduction in the numbers of tourists caused by the spread of coronavirus is seen increasingly in alcohol duty intake.

"In total, €86.2 million was paid in excise duties in August, which is 8.8 percent less than the year before. Of the major excise duties, inflow of the fuel and alcohol excise duty declined the most year over year - respectively by 6.7 percent and 11.3 percent," Kiveste said.

Where an analysis of the inflow of the alcohol excise duty in June gave reason to expect that despite the crisis and lower rates of the duty, inflow has recovered to the level of 2019, the end of the summer has given a different message. 

"The declared amount has been declining for both strong alcohol and beer in the past two months. The reason is reduced numbers of foreign tourists, which is reflected also by low sales of the port area stores, a low level of stayovers at Tallinn's hotels and small visitor numbers in Tallinn's main attraction, the Old City," the analyst said.

Also the government's decision to restrict alcohol sales during the night is playing a role, and the same trend in alcohol tax receipts is seen to continue in September.    

Of VAT, 4.9 percent less flowed in during the eight months than during the same period last year. In August the amount paid increased by 1.6 percent year over year, which foremost was the result of a reduction in arrears. The VAT payment obligation remained on the level of last year. 

"The rate of reduction in the payment of VAT in the first half of the year was 8.6 percent due to the impact of the emergency situation, and the bottom in receipts was hit in March and in April, when payments decreased by 18 percent on average in year-to-year comparison. Starting from July, inflow has increased, and in the past two months 5.6 percent more has been paid than a year ago," Kiveste said.

VAT arrears decreased by close to €3 million in a single month, and amounted to €186 million at the end of August. Year on year, VAT arrears have increased the most in construction and decreased the most in the sale of motor vehicles, respectively by €7 million and €3 million. The number of businesses in arrears has increased the most in catering -- by 316 legal entities.

Of areas of activity, retail, and crop and animal production made significant contributions to the recovery in VAT inflow, registering increases of respectively 13.8 percent and 30.9 percent year on year. The growth in retail was largely the result of 4 percent increase in sales by food stores and a significant 21 percent increase in sales over the internet or by mail-order.

In the first eight months of the year, the biggest reductions were registered in the amounts paid by such major sectors of activity as the sale of motor vehicles and wholesale, which registered decreases of 18.9 percent and 10.7 percent, respectively. The reduction in the sale of motor vehicles is primarily a result of smaller sales of cars and minivans, and the reduction accelerated in August compared with July.

Data on new car sales in September indicate that the downward trend in VAT payments will come to a halt, yet the inflow in September probably will not yet equal the amount received a year ago.

"The reduction in the payment obligation in wholesale was mostly the result of a reduction in the wholesale of motor fuel. In addition, low motor fuel prices in August compared with the year before, which decreased by 7 percent in the case of gasoline and by as much as 24 percent for diesel, had a negative impact on the increase in VAT payments," the analyst said. 

According to a report commissioned by the European Commission, Estonia's VAT gap has narrowed by €10 million to €127 million and stands at 5.2 percent of the theoretical level of receipts, which is a better result than the EU average. 

Estonia's government sector deficit expanded to €935 million or 3.5 percent of GDP by the end of August, with the gap widened by municipalities and the central government alike. 

Compared with the end of 2019, the gap is wider by about €880 million, largely as a result of a bigger deficit of the central government arising from both bigger outlays due to the crisis relief measures as well as the decreased income base.

Tax receipts have decreased by roughly €170 million year over year. In addition, the state budget has received smaller amounts than before in environmental fees and receipts from the sale of pollution credits. On the other hand, the state has earned €80 million more in owner's income than last year. 

"The impact of the crisis is reflected also on the position of the Unemployment Insurance Fund, which ran a deficit of €304 million at the end of August. Local governments meanwhile ran a bigger surplus than last year thanks to the support measures of the state and cautious financial behavior," the analyst added.


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Editor: Kristjan Kallaste

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