Minister wants tenth of corporate income tax to go to local governments

Jaak Aab.
Jaak Aab. Source: Ken Mürk/ERR

Minister of Public Administration Jaak Aab (Center) has sent a proposal to the government to allocate 10 percent of the income tax of corporate dividends to local municipality governments, based on the number of people working in the local government's region. The amendment could be implemented in 2026 and bring local governments €53 million.

The state received €450 million income tax from companies last year. Next year's budget estimates €489 million of taxes to be paid on dividends. The minister's proposal would see 5 percent of the income tax going to local municipality governments in 2023, gradually climbing to 10 percent in 2026.

The total sum would be allocated to local governments based on the number of jobs in the region and a periphery coefficient. The coefficient for one job in Tallinn and Harju County would be one and up to five in other regions. The total sum would not depend on the types of jobs in the municipality, so the local government would receive the same amount regardless of salary or taxes paid.

"Let's say, for example, that Harju local governments would receive €49 in support [per year]," Aab said. "In a rural region - whether it be Mulgi municipality, Lüganuse or Narva - they would receive €249 per job, if we go by the equation I have described."

The minister told ERR that the support scheme could increase the motivation to support entrepreneurship and to bring job creators to the region. The aid would be paid on the basis of the job location in the employment registry and not on the company's registered office.

The proposal will be discussed at a government cabinet meeting. With an approval from the government, the Ministry of Finance would draw up a more detailed draft. The bill would then have to be passed in the Riigikogu.

Aab said he came up with the proposal when looking at the government's action plan and that he cannot say when the government will discuss the idea. The minister denied any connection to the local government elections, which started on Monday and will end on Sunday.

"I just made the proposal. Routine work is being done in the [government] cabinet. I have not timed this to go with elections in any way," Aab said.


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Editor: Kristjan Kallaste

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