Finance ministry wants to reduce cash-in-hand wages on building sites

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Construction work in Estonia (photo is illustrative). Source: Priit Mürk/ERR

Construction site employees must start carrying and clocking in and out of work with smart cards according to new legislation. It is hoped this will stop the payment of cash-in-hand wages which sees the state lose €28 million in taxes every year.

Siim Tamm, development specialist at the Tax Audit Department of the Tax and Customs Board (MTA), believes the situation should improve from 2023 onwards.

According to the draft legislation presented last week by the Ministry of Finance, a system for recording working time must be set up on large construction sites in 18 months time at the latest. In practice, this means each worker will be given a card that must be tapped when entering and leaving the site.

"The system forwards the information to the database created by the Tax and Customs Board, and then an automatic comparison and check would be carried out by us," said Tamm. A check can then be carried out on a company if the data does not match.

Tamm said it will not be immediately assumed a violation has taken place due to the data.

The Estonian Association of Construction Companies has been in favor of a similar system for several years. Union leader Indrek Peterson said the general contractor is responsible for both tax fraud and foreigners without a work permit at the site.

"But they may not see who specifically operates the site under a subcontractor and whether they have the right to be present at the site," Peterson said, adding better oversite is in the interests of honest businesses.

Before the law enters into effect, companies must buy a system that allows them to communicate with the Tax and Customs Board. The system will be needed on sites where construction will take at least 30 days and where 20 people or more work at the same time. There are between 600-700 construction sites that fit this critera in Estonia every year. In total, 13,000 building permits are issued each year.

Peterson said the threshold was set so that it is not too strict but that in future the rules may apply to smaller companies as well.

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Editor: Helen Wright

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