The government wants to introduce two completely new taxes at the beginning of next year. While drafts of a car tax started circulating last spring and are now awaiting a second reading in parliament, the draft sugar-sweetened beverage (SSB) tax was only seen by the public this Wednesday.

The length of time needed to process the bill is also the first obstacle that could prove fatal to the ambitious implementation date of the tax.

The exact wording of the law will determine how the tax will be collected. Evelyn Liivamägi, the undersecretary for tax and customs policy at the Ministry of Finance, said that while the car tax bill was being drafted, much of the tax collection process was under review.

Feedback from the Ministry of Finance on the draft SSB tax is expected by the end of March.

"There has been no public discussion and engagement with stakeholders. We also received the draft only yesterday (Wednesday - ed.) to start thinking about how to structure the tax collection," Liivamägi said. "And if you think about the reasonable pace of the process, we have our doubts that this sweetened beverage tax bill will be passed by July 1," she said.

There are still many issues to be resolved

Raili Roosimaa, deputy director general of the Estonian Tax and Customs Board, said the draft was announced a few weeks ago. "It was only then that we were able to start putting the resources together to get this issue on the table, to get it under control, to think it through, and to be able to give feedback by the end of March," Roosimaa said. "It is a challenge in any case."

Tax collection and monitoring must be planned. The definition of taxpayers needs to be clarified. According to the current draft, producers or importers of beverages must pay the SSB tax when they sell them for the first time in Estonia. Roosimaa cited the alcohol excise tax, which requires a license.

"If we don't have such a license or some kind of permit procedure, it will be very difficult for the tax and customs authorities to find and identify that taxpayer," Roosimaa said.

These and other questions, the officials said, should be answered before the Riigikogu passes the bill. And, in general, there should be at least six months between tax changes and their enactment to give people and businesses time to adjust to the tax increase.

It will take at least a year to introduce the new tax

But that's only one side of the story. For genuinely novel taxes, the real work usually begins after parliament has spoken. "The normal time for introducing a new tax is at least a year," Liivamägi said.

In other words, if the tax passes the legislature before the summer recess, the earliest it could be collected would be next summer. If the bill takes longer to pass, the tax on sweetened beverages may not be implemented until early 2026. The tax and customs authorities are already recommending a later date.

"We have provided such feedback to both the Ministry of Finance and the Ministry of Social Affairs," Roosimaa said.

She said that the implementation of the car tax will be quicker because the draft has not changed much since last fall and the Tax and Customs Board has planned for the possible changes and the new workload.

"Of course, we are focused on making sure that it really comes on January 1. But it will depend on the final version. The more details and complexities that are written into it, the more difficult it will be to develop," she said.

SSB tax is also a challenge for business development

Liivamägi said that while everyone has been preparing for the car tax for a while, its implementation is easier because in the case of the car tax only the state does the work.

"The state takes the data from the registers, calculates the tax based on a formula, and sends a tax notice to the person and the company," Liivamägi said. "But in the case of the tax on sugary drinks, the entrepreneur also has to do a lot of work."

The Tax and Customs Board does not currently know who exactly is bringing sugary drinks into Estonia. Even less does it know how much sugar is in the drinks sold here. This is the information that companies will have to provide to the Tax and Customs Board.

The companies that produce beverages here have accurate data, but for those that import beverages, there was no reason to keep separate accounts for sugar details.

"But now, if that data has to be used for taxation purposes, it could mean, for example, in the case of imports, looking at the label to see how much sugar is on the product. I think there's a lot of administrative burden that's going to come down on companies," she said.

According to Liivamägi, the whole process needs to be carefully thought out in order to keep the administrative burden as low as possible and to ask companies for as little data as possible.

The possible postponement of the SSB tax also means that politicians will not be able to count on the expected €25 million revenue from the tax when preparing next year's budget.

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