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Incoming coalition hikes may put Estonia top of EU in consumption taxes

Food shopping.
Food shopping. Source: Priit Mürk/ERR

Given the incoming coalition's planned hikes in VAT and excise taxes, Estonia may end up with the highest consumption taxes, in real terms, in Europe.

A consumption tax comprises any a tax levied on consumption spending on goods and services, meaning they are usually indirect taxes such as VAT and sales taxes.

Estonia already ranks third in the EU in terms of real consumption taxes (23.2 percent), after Denmark (24.2 percent) and Hungary (23.5 percent), ERR reports.

The EU average stands at 17.9 percent, while the lowest figures are to be found in Spain 14.9 percent Romania 15.2 percent and Germany 16.3 percent

While an exact figure for Estonia once the planned coalition tax hikes are put in place cannot be stated precisely, in real terms it is likely to rise, and may exceed the levels seen in Hungary and Denmark, ERR reports.

On small paradox needs to be looked at, however. Estonia's 20 percent VAT rate is in fact near the bottom of the EU league, together with Bulgaria, Slovakia, Austria and France (only Germany, Cyprus, Romania, Malta and Luxembourg have lower rates, within the EU).

Raising VAT by 2 percentage points as planned by the new coalition would bring Estonia to a mid-range level comparable with that of Italy and Slovenia, and still with nine EU nations with higher rates, out of the total 27.

However, VAT exemptions are rarer in Estonia – applied to medicines and the tourism sector, for instance – than they are in many other EU states, meaning that VAT is applicable to a wider range of purchases than in many other countries.

Furthermore, the 20 percent VAT rate does not flag the impact of other consumption taxes such as excise duties, or even hidden taxes. For instance, consumption tax levied on hard drives, smartphones and other storage devices – as was already levied on blank cassettes and blank CDs back in the day – as a sop to the music industry to compensate for piracy.

Once the real consumption taxation levels are taken into the picture, the levels are higher, given the already comparatively high excise duties, which the incoming coalition has pledged to raise further.

More detailed information on consumption and other tax trends in the EU is available here.

The coalition has pledged to raise VAT and also income tax – the latter not a consumption tax – by two percentage points, while excise on alcohol and tobacco will be hiked, likely in conjunction with Latvia's rates. A planned car tax will also be put in place.

Prime Minister Kaja Kallas (Reform) said last fall that no major tax hikes were likely, while the above hikes were generally not directly referenced by the three coalition parties during their election campaigns.


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Editor: Andrew Whyte, Huko Aaspõllu

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