The Ministry of Regional Affairs and Agriculture sought feedback from cities and municipalities on how they could generate more revenue independently to foster regional development. Business umbrella organizations were also asked for their opinions.

Cities and municipalities have now submitted several proposals to the state regarding local taxes that could be introduced. Suggestions included property taxes, inheritance taxes, the possibility of implementing various environmental protection or waste management fees and charging local fees for natural resource extraction.

Many local governments also recommended that the state consider introducing a tourism tax, noting that it is widely used in other countries and would be relatively easy to implement.

Sigrid Soomlais, deputy secretary general of the Ministry of Regional Affairs, told ERR that business organizations were concerned about the potential tourism tax.

"They pointed out that we should not rush into these new taxes. Their concerns are understandable given the recent nationwide tax hikes. However, this should not be viewed as an approach to introducing new national taxes. This is certainly not part of any 'tax festival,'" she said.

What benefits larger cities may not necessarily generate revenue for smaller municipalities.

"The only two reliable sources of income for municipalities are income tax and land tax. These are the two steady options. If anything new is considered, it should be based on these. All other alternatives – such as parking fees – may work for some, but they are really an option for urban areas. The tourism tax is also a possibility, but mostly for tourist regions; it's not an option for all municipalities," said Lauri Luur, mayor of Tori.

Veikko Luhalaid, executive director of the Association of Estonian Cities and Municipalities, said that municipalities should be granted more tax authority. However, he noted that some interest groups might disagree.

"For example, when the idea of setting upper limits for land tax was discussed, absolutely all other relevant organizations – from forestry groups to farmers – were against it. Even though the actual impact on their activities would be minimal, only one or two euros, it could still benefit local life. Yet they opposed it – a kind of general resistance," Luhalaid said.

The Ministry of Regional Affairs and Agriculture plans to finalize a draft plan by the beginning of next year, with new options potentially available to cities and municipalities by the year after next.

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