The land tax issue came to the fore three years ago when a new land valuation was carried out in Estonia, revealing that land values had increased several times over the past two decades. On average, they had grown about eightfold, Marko Udras, head of policy and legal affairs at the Estonian Chamber of Commerce and Industry, told ERR.

Higher land value also means higher land tax. The results of the 2022 land valuation came into effect last year. However, to prevent tax bills from rising in step with land values, the government implemented a relief measure that capped annual increases in land tax at 10 percent. This restriction applied only in 2024.

"As of the beginning of this year, a change came into effect allowing land tax amounts to rise by up to 50 percent. Starting next year, local governments will be able to decide the extent of the increase themselves, within a range of 10 to 100 percent. The Chamber of Commerce and Industry's proposal is that landowners — both individuals and businesses — should not have to endure such a rapid increase in land tax," Udras said.

The chamber is therefore proposing that the Land Tax Act be amended to restore the cap on annual increases to the previous level, meaning the tax amount could rise by no more than 10 percent.

Chamber: Public interest should not take precedence

In its appeal to the minister of regional affairs and agriculture, the Estonian Chamber of Commerce and Industry notes that when the Riigikogu passed legislative amendments related to the regular land valuation — including the establishment of a cap on tax increases — it came with a promise that landowners' tax burdens would not rise too quickly in the coming years. According to the chamber, this created a legitimate expectation that the 10 percent cap would remain in place for more than just one year.

"A legitimate expectation does not mean the 10 percent cap on land tax increases can never be changed. However, when limiting such an expectation, both public and private interests must be considered. In our view, there were — and still are — no compelling public interest arguments that would justify breaking this promise to landowners so abruptly," the chamber wrote in its letter to the minister.

Another issue highlighted is the lack of predictability in the tax environment. Landowners currently have no way of knowing whether — or by how much — their land tax will increase next year or beyond.

"This is especially critical for businesses for whom land is a key production input — primarily agricultural companies, but also forestry businesses and firms that own real estate," Udras explained.

The situation becomes even more complicated when a business owns land in several municipalities, each of which may set different caps. As a result, it becomes very difficult to forecast next year's land tax obligations. A uniform 10 percent cap would make it significantly easier to predict costs, the chamber argues.

The appeal also emphasizes the positive impact such a change would have on regional development, as well as the reduction in administrative burden for both municipalities and the Tax and Customs Board.

Regional minister open to discussion

New Minister of Regional Affairs and Agriculture Hendrik Johannes Terras (Eesti 200) told ERR that the 10 percent cap was intended from the outset as a one-time measure to give people time to adjust to the new situation.

"The government's priority is to strengthen the financial capacity and decision-making power of our local governments. Land tax is a local tax that goes entirely into municipal budgets and is a critical source of revenue for funding local services. That's why we set the 2025 cap at up to 50 percent — to enable municipalities to gradually increase their revenue base in line with local needs," the minister said.

He also pointed out that, compared to the rest of Europe, Estonia ranks among the lowest in terms of local-level decision-making authority.

"Through this, we are giving municipalities real autonomy and responsibility for the development of their regions. Local governments themselves have said this is what they want."

Local governments have also noted that under the 10 percent cap, their total land tax revenues decreased, said Marko Udras. "This is partly because the state reduced the tax rates for certain land categories," he explained.

Terras said he understands the Chamber of Commerce and Industry's concerns about predictability and a stable business environment. "At the same time, I believe that financially strong municipalities with independent decision-making power are, in the long term, the foundation for development and prosperity not just locally but across Estonia, including for businesses. These changes serve that broader goal."

Now, the center-right government must decide whether to support greater financial autonomy for municipalities or create a more stable tax environment for businesses.

Terras repeatedly emphasized that he wants to meet face-to-face with representatives of the Chamber of Commerce and Industry to discuss the proposal and find the best possible solution.

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