"It came as a surprise, but as I understand it, it is also a proposal from some business organizations. After all, we agreed very precisely in the coalition negotiations only a few weeks ago what this security tax would look like. That it would be very wide-ranging. It will hit all individuals, but it will also hit all businesses. However, we are willing to look into this proposal when we now begin discussing our budget process," Tsahkna told ERR.

Tsahkna said that based on the information available to him, there are both pros and cons to Ligi's proposal.

"On the positive side, it would certainly be easier to administer the tax in this way, as there will be no concealment of income, for example, and the wage fund will be very clearly calculable for all businesses," Tsahkna said.

"But on the other hand, it is the substantive effect that would be negative. In other words, those who have more employees will be the ones affected, which means that in reality it is an increase in the tax burden on labor. And if we look at what the challenge is for our economy, it is precisely that the manufacturing industry, where there are more jobs and especially those [companies] who also export, will be worse off," Tsahkna added.

"Instead, the winners will be those companies that have no employees and that are either engaged in intermediary or financial activities. They would stay further away from this tax," he said.

"We haven't discussed it inside Eesti 200 in such a way that this would be the opening for a coalition agreement. But obviously it's a different solution to the one we agreed. We did not agree on one, two or three parts of this security tax, but on how to make it as comprehensive as possible, so that it would be temporary and based on solidarity. In other words, so that all social groups would be contributing to this security tax. If the finance minister comes up with this proposal, we will take apart the whole security tax package and start recalculating it," Tsahkna said.

"But my concern, as someone who has also been involved in business, is that we don't treat entrepreneurs unequally and that we don't damage our industry," Tsahkna added.

In an interview given to ERR Friday, Finance Minister Jürgen Ligi said he is weighing up a 2-percent additional tax on all employee wages, rather than a prepayment on corporate profits as had earlier been proposed. According to Ligi, this would make it easier to collect the tax and would not be burdensome for companies.

On Monday, Social Democratic Party (SDE) Chair Lauri Läänemets, criticized Ligi's payroll tax idea, saying it would restrict the move towards prosperity and also economic growth.

The so-called security tax, really a raft of tax hikes as set out in the coalition agreement, consists of three parts: A 2-percent tax on revenues; starting from July 1, 2025. A 2-percent tax on personal income, effective from January 1, 2026. A-2 percent tax on corporate profits, also starting from January 1, 2026.

--

Follow ERR News on Facebook and Twitter and never miss an update!