Riigikogu supports elimination of tax breaks and increase of income tax

Euros. Source: Siim Lõvi/ERR

Despite opposition overnight, the Riigikogu passed, in the early hours of Tuesday morning, a law that will be tied to a vote of confidence in the government, resulting in the elimination of a number of tax breaks, an increase in income tax, and the replacement of the regressive tax-free income with a flat tax-free income.

58 members of the Riigikogu supported government-sponsored legislation to amend the Income Tax Act and the Military Service Act (148 SE), while 33 opposed it.

Beginning in 2024, the Act eliminates a natural person's additional tax-free income from child and spousal support and the right to deduct mortgage interest.

Beginning in 2025, both the individual and corporate income tax rates will increase by two percentage points to 22 percent. At the same time, the 14 percent preferential rate on routinely distributed corporate profits and the 7 percent withholding tax on dividends paid to individuals will be eliminated. 

The advance payment rate for credit institutions was to increase from 14 percent to 22 percent according to the original draft. Prior to the second reading, the government modified the document so that the advance payment rate will increase by a lesser amount, to 18 percent.

Beginning in 2025, the law eliminates the regressive tax-free income and replaces it with an annual tax-free income of 8,400 euros, or 700 euros per month. There will be an exemption for retirees, whose tax-free income will equal their average pension.

On May 17, the measure passed its first reading. By the deadline, 377 amendments had been submitted. The government decided on June 8 to tie a vote of confidence to the adoption of the measure prior to the second reading, thereby assuming the responsibilities of the lead committee. The proposed amendments to the government's measure of confidence will not be put to a vote.

The extraordinary session of the Riigikogu will continue on Tuesday morning with the second and third readings of the bills and a number of votes of confidence will be scheduled. The extraordinary session will continue until all agenda items are addressed.


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Editor: Kristina Kersa

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