Kallas said the aim of the changes is to increase the financial autonomy of local governments and give them broader decision-making authority over the land tax rate in their territories.

"Local governments have long desired more freedom in decision-making. They are closest to their people and most familiar with local circumstances and challenges. Let us trust their judgment and decisions on how to act most sensibly in their territory," he said via a press release.

The bill allows local governments to decide on the land tax rate themselves. Land Tax would increase if the city or municipality council so decided, based on local needs, objectives and agreements.

"Local governments have so far very much supported the increase in financial autonomy and have generally welcomed proposals to review local taxes. However, a significant portion of municipalities have now indicated that they do not wish to raise land tax in the coming years," Kallas stated.

The bill also proposes increasing by how much the tax rate can be hiked in a single year, which could lead to much higher land tax rates compared to today. Currently, this limit is 10 percent per year, but according to the bill, it would be 50 percent per year by 2025.

"From 2026 onwards, however, we want to give municipalities greater decision-making authority and reduce state restrictions on local decisions. In the future, the state-imposed 50 percent limit would disappear, and municipalities could decide on the tax rate themselves: whether to reduce it, keep it where it is or increase it if necessary," the minister explained.

The bill also stipulates that from 2026, local governments will have the authority to decide the size of the land tax exemption for land under homes within their territory. "Municipalities can continue not to tax homes," Kallas explained, adding that in some municipalities, owners of more expensive lands might start paying a portion of the land tax. "For example, currently, some owners of very large households might receive a land tax exemption for land under homes close to one thousand euros. From 2026, municipalities will have the opportunity to review these principles according to regional needs."

Additionally, the regional minister wants to increase the maximum land tax rate for commercial and industrial land from 1 percent to 2 percent by 2025 with the current bill. According to Kallas, this change is intended primarily for municipalities in Harju County, where, for example, land tax revenue from industrial land decreased following land valuation. "In planning land valuation, the maximum land tax rate for commercial and industrial land was reduced too much. Now, we are making corrections there," the minister explained.

The bill would not change the rate ranges for residential and agricultural land.

Moreover, the bill introduces a change that shifts the deadline for local government councils to amend land tax rates from July 1 to October 1. Councils must also decide by October 1 each year whether and to what extent the land tax growth limit and the land under home tax exemption will change for the upcoming year.

According to Kallas, greater financial autonomy for municipalities, alongside planned changes to the state's revenue base, is an additional way to reduce regional inequality and give municipalities more flexibility to organize their work and activities.

The Land Board conducted the most recent land valuation in the fall of 2022. As a result of the land valuation, the taxable value of lands increased by 8.3 times. The next valuation will take place in 2026, and then in 2030, and so on, with regular land valuations occurring every four years.

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