According to Estonian Prime Minister Kaja Kallas (Reform) the four percent increase in VAT for hotels, the press and banks' advance tax was a compromise. Kallas added, that the situation for the media is not directly linked to the VAT rate.
On Monday, the Estonian government approved four bills of amendments to the country's tax laws. According to the bill, on January 1, 2024, the VAT rate in Estonia will increase from 20 to 22 percent. In 2025, the VAT rate for accommodation meanwhile, will rise from 9 to 13 percent. The VAT rate on press publications, however, is set to increase from 5 to 9 percent. Advance income tax for banks is also set to rise from 14 to 18 percent.
Kallas told ERR radio, that the increase in the banks' advance income tax tares to 18 instead of 22 percent is justified by the fact that banks was to ensure Estonia remains competitive.
"It was a compromise for everything to go up by four [percent]: for accommodation establishments, banks' advance income tax and VAT for the press," Kallas said.
Although media companies have been heavily critical of the VAT increase, Kallas pointed out, that the tax would only rise from 2025. Therefore, the increase would not be a reason to lay off people now.
"Secondly, the VAT on the press was nine percent only a year ago, and what happened when we lowered it? The Monday papers disappeared and prices went up for consumers. All this in a situation, where we actually lowered VAT," the prime minister said.
She added, that if the situation for the media became worse following last year's VAT cut, then it showed that the VAT rate was not the main problem.
Regarding plans for smaller VAT increases for accommodation establishments, Kallas said, the argument that higher VAT rates would reduce Estonia's competitiveness against other tourist destinations, did not seem plausible to her. She pointed out, that tourist establishments have raised prices themselves, several times more than the level of VAT rate increases.
"But they had very clear arguments in terms of competitiveness and so we took those into account," Kallas said. "Because, according to the rules, you can have two preferential rates, the consequence is that we are also forced to increase the VAT rate for the press."
Eesti 200's Riigikogu chief whip Marek Reinaas said, that for his party, the most important thing was the reduction in VAT rates for accommodation establishments.
"We did talk to representatives of the sector as well as to various other interest groups. We asked them to do conduct analyses, quite a few of them. I think one thing that emerged from these conversations was indeed, that is not very sensible to impose a full VAT rate on accommodation establishments. Most likely it will remain at 13 percent," he said.
On the issue of advanced income tax for banks, Reinaas said that the solution initially proposed by the government would not have been the best one for Estonia's small banks. However, in his view, good work has been done in the Riigikogu and the changes, which have eventually been put forward should benefit them, while also not affecting the big international banks as much.
Reinaas pointed out, that the drop to five percent a year ago was linked to Russia's war in Ukraine and the disappearance of Russian media from the market, allowing Estonian media outlets to take up the space they had left behind.
"After all, we all sincerely hope that the war in Ukraine will be over before the end of next year, when the nine percent VAT on the press is reintroduced," he said.
Reinaas also pointed out, that he owns a small stake in the newspaper "KesKus," which will neither be weakened by the VAT increase nor forced to lay off staff.
"I remind you, that this VAT increase, only comes into force from the end of next year. If media companies are using this news in their communication now, then frankly, as a member of the Riigikogu, I have seen some very good lobbying from various interest groups and the press is no exception," Reinaas said.
Editor: Michael Cole