Minister: Abolition of land tax exemption put back to 2025

Private residences in Estonia.
Private residences in Estonia. Source: ERR

While an initial coalition plan foresaw within the next year abolishing the tax exemption on land tax, and also the limit on the rise in land tax, Finance Minister Mart Võrklaev (Reform) now says that, at the rate things are going now, it will be installed in the following year, in other words 2025, instead.

Speaking to ERR Wednesday, the minister said that whereas the limit is currently set so that the land tax may not be hiked by more than 10 percent in a year, under the new plan, local government would be given the reins to set its own increases, in view of any need to increase their revenue bases.

There are 79 local authorities in Estonia, subdivided between city and rural municipalities.

However, there is not time now to put this in place this year, Võrklaev said, as the rates would not attain a properly established level, while a sufficient number of people would not be involved in the process.

"Because this represents a major change for local government, taking time for discussion through summer is required," he said.

Võrklaev said that at the tempo the coalition is currently moving at, the land tax exemption on land underneath a residence and the land tax hike limit would be lost from 2025. There is also a legislative dimension here. Specifically, the Taxation Act stipulates that at least six months falls between the adoption of amendments to it, and their entry into force.

Võrklaev noted that local governments' feedback on the amendment of the rules is currently awaited, since the local governments must have the opportunity to discuss any increase in rates at the local council level.

"The situation with local governments is very different; they have to decide what appropriate would be tax rates, by looking at their budgets," the Minister of Finance said.

"Were we to process the loss of the 10 percent protection mechanism and the land tax exemption in the summer, along with other legislation, local governments might then want to adjust their rates. For example, if raising it above 10 percent would still cause some taxpayers to pay too much, that rate should then be adjusted downward."

According to Võrklaev, this requires negotiations with all 79 local governments, while these negotiations are now under the remit of Regional Minister Madis Kallas (SDE).

Through the summer, input is expected therefrom, in order to progress with the draft legislation.

The purpose of the changes is to boost the financial autonomy of local governments, in other words to grant them the opportunity to decide for themselves both any exemption from the residential land tax, and the pace of land tax rate hikes.

Whether the current ongoing obstruction by the opposition parties at the Riigikogu was also a factor in the delay was not reported.


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Editor: Andrew Whyte, Karin Koppel

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