In 2019, the rental income tax receipts came to €23.7 million, a rise of €2.7 million on 2017. The MTA's tax audit department's manager, Erkki Paulus, said it is difficult to catch those who are settling in cash, and thus not paying tax this way.

"One of the main reasons is the increase in the number of residential properties. Since new properties are built constantly and there is economic growth and the increase in rent prices, then the tax take increases as well. There is no direct reason why cash should be used nowadays. It is much more comfortable to make payment over the modern internet banks. I don't see a rational reason," Paulus said.

The Estonian Chamber of Real Estate Agents' board member Ardo Lepp said that, however, he no longer meets as many property owners who are apprehensive of taxes as he did 10 years ago. Lepp added, however, that the elderly can pay their rent in cash.

"Settling in cash can be one possibility, which some owners use to go to the apartment once a month and take a look, to see in what state the apartment is in and how the tenant is using it," Lepp said.

Paulus says that general economic growth means that the taxpayer is more and more responsible. He added that the most important aspect in increasing the willingness to pay is information provision.

The other option is to amend the law. "If we could make owners declare their rental income, which would mean that declaration is bilateral, then the moment won't occur where the income is undeclared. Bilateral declaring, which is easy to compare. When if from one side the income has been left undeclared, then we can see from the other side."

Paulus emphasizes that such a change in the law needs further analysis. Priit Pärna, Chairman of the Board of the Central Union of Estonian Property Owners, believes that with such a solution, the state would interfere too much in transactions between private individuals. Instead, Pärna offers an opportunity to make a tax exemption, which would direct part of the already-lost tax revenue to promote entrepreneurship.

"Renting one property could be income tax free by law. It is a form of small business. It would definitely activate the rental market if people know that renting out their home or apartment is income tax free. It would encourage investments in rental real estate and also have a positive effect on rental prices," Pärna said.

Pärna added that many property owners are private companies that pay taxes when the rental income is paid out as a profit. Thus, bilateral declarations could put pressure on private individuals to form private limited companies, he said.

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