Aivar Hundimägi: Much ado about taxes

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Aivar Hundimägi. Source: Erik Prozes

Both head of the Reform Party Kaja Kallas and Center Party leader Jüri Ratas have supported reforming and modernizing the Estonian tax system in words. Unfortunately, the actions of neither seem to suggest any real willingness to tackle the issue, Aivar Hundimägi says in Vikerraadio's daily comment.

The recent G7 agreement for a global income tax minimum of 15 percent for international corporations has resuscitated the tax debate in Estonia once more. Unfortunately, past debates have come to nothing as politicians have shown no real interest in reforming the tax system.

I hope it will be different this time and tax change ideas will be debated before the next Riigikogu elections to help voters see past various tax-themed election slogans.

Perhaps I'm being unfair, but it seems to me that coalition parties have once again smelled the opportunity to reheat the same old tax soup. The Reform Party introduced the current corporate investments income tax exemption around the turn of the century. They have stood firm in its defense and have not agreed to give it up.

Reform's coalition partner Center has criticized the current corporate tax structure and vowed to amend it, in addition to its core promise of progressive income tax.

The global taxation principle proposed by the G7 gave Reform the chance to rush to the defense of its tax exemption for reinvested profits and Center an equally good opportunity to set itself in contrast.

The Center Party sent out a press release over the weekend in which Minister of Economic Affairs and Infrastructure Taavi Aas said that the G7 initiative should also be executed in Estonia. Aas explained the position through the G7 proposal helping to curb international corporations taking profits out of Estonia and using various schemes.

"It is fair for a company to pay taxes in the country it is active in," Aas wrote. The economy minister noted that next to corporate income tax, a social tax ceiling should be considered and dividend tax rates reviewed.

Both head of the Reform Party Kaja Kallas and Center Party leader Jüri Ratas have supported reforming and modernizing the Estonian tax system in words. Unfortunately, the actions of neither seem to suggest any real willingness to tackle the issue or really promote a tax debate.

It is high time to propose tax change ideas and debate their pros and cons, so that voters could easily pick between them at 2023 Riigikogu elections. Without it, we will see a repeat of previous elections and Estonia will spend the next four years with the same outdated tax system.

Estonia stands out with its high labor taxes. This might start to deter labor-intensive businesses. Investments move where hardworking and smart people are available. While Estonia has such people, we do not have enough.

A social tax ceiling has been proposed as one solution. More than a few parties have promised to introduce it in different variations before elections. The promise is usually quickly forgotten after elections.

Estonia also stands out by not taxing assets. Sporadic calls for a vehicle tax quickly die down again. Proposals to tax real estate suffer an even worse fate.

The third topic that keeps resurfacing is taxation of dividend revenue. As far as taxes are concerned, it is most gainful for a person to offer their services in the form of a limited company. To remedy this problem, a social tax minimum has also been proposed.

The Estonian economy has changed a lot this century, while its tax policy has remained unchanged or even stagnated. Therefore, we might commend Taavi Aas for his weekend press release. However, I am afraid that in reality it is yet another example of much ado about nothing.

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Editor: Marcus Turovski

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