"We are abolishing the corporate profits tax. Secondly, we are reducing the income tax burden for individuals and reversing the taxation from the first euro earned. Only the standard value-added tax (VAT) and income tax will remain. Jürgen Ligi's perspective is entirely correct — security needs will not disappear quickly. The separate component of the defense tax — we will abolish that — and the tax system will return to normal, consisting only of VAT and income tax. However, we still need to discuss the issue of time limits among ourselves — I consider Ligi's position to be reasonable, and it is likely that the VAT rate will remain higher for a longer period," Michal said at Thursday's government press conference.

Michal also stated that his personal preference would be to lower personal income tax. "This would help people manage better and allow the economy to grow faster. We will continue to debate this," he said.

Last year, the defense tax legislation was passed, introducing a security tax in effect until the end of 2028 to generate additional tax revenue for Estonia's defense capabilities and security investments.

The defense tax consisted of three components: a 2-percent VAT increase starting July 1, 2025, a 2-percent tax on personal income beginning January 1, 2026 and a 2-percent tax on corporate profits from January 1, 2026. The government abolished the corporate profit tax in March.

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