Hotels, restaurants and the Estonian Employers Confederation have criticized the new government's plan of abolishing the special 9-percent VAT rate of accommodation providers. The city of Tallinn has also withheld its approval and suggested the change would negatively impact the competitive ability of the sector.

Kallas said that his primary concern is the effect the amendment would have in regional terms, adding that he wants to give local governments and Estonia's tourism regions a clear message of how the change would affect them according to the government's calculations. The minister said that the government will need to look at all relevant analyses and mull compensation measures in the coming weeks.

The government wants to pass tax changes as a single package and leaving the matter of accommodation providers' VAT rate for the fall session of the Riigikogu would only add to the confusion.

Minister of Health Riina Sikkut (SDE) said on the "Otse uudistemajast" webcast that the government will send the tax changes to the Riigikogu this Thursday where the debate will continue. The former economy minister hinted that the decision to abolish the special VAT rate has been made.

The Ministry of Finance estimates that while hiking the effective VAT rate for the accommodation sector will yield an additional €20 million in tax revenue, this will be offset by the number of foreign tourists dropping by 5 percent and a corresponding slump in consumption.

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