Estonia, Financial Services, Legislation, Society, Taxation

The bill establishes social tax rate of 32.5% in 2017 and 32% in 20018 instead of the current 33%. As the result of tax changes, corporate tax burden falls in 2017 by 40.5 million euros, and from 2018, 86 million euros.

The law amendment has no effect on the pension system and the health insurance fund revenues, due to a compensation mechanism that covers lower tax receipts with other state budget revenue.

With the amendments to the income tax law, tax-free income is increased gradually over the next four years to 205 euros per month in 2019 (170 euros in 2016) and the tax-free part of pensions is increased to ensure that the average pension is income tax free.

The bill regulates the rules for the taxation of rental income, enabling private individuals to deduct 20% of rental revenue without providing documentation when declaring income.

The total amount of deductions from personal taxable income is reduced from 1,920 to 1,200 euros a year. That includes for example mortgage interests, training expenses, charitable donations etc.

Alcohol, tobacco, fuel and electricity excise changes are part of the government's plan to restrict the consumption of alcohol and tobacco, and to shift the tax burden from labour to consumption. It will also harmonize energy taxation on the basis of their function and energy content.

The bill raises alcohol excise tax by 15% from February 1, 2016. Tobacco excise tax will be raised in addition to the earlier established 5% by 3% more in 2016-2018, while the increase of 2016 enters into force on 1 June 2016, or half of year later, than initially planned. Also, alcohol and tobacco excise tax increases in 2019 and 2020 by 10%, except excise tax on wine and tax on fermented beverages, which rises 20%.

Petrol excise tax will be increased by 10% in the next three years. From January 1, 2016, excise tax on diesel fuel is increased by 14% and in 2017-2018 by 10%.

The amendment to the VAT law raises VAT rate for accommodation establishments from 9% to 14% in 2017. The new tax rate is still significantly lower than the general rate of VAT in force.