Amendments to the Land Tax Act May Allow a 50% Annual Increase in the Future

The Estonian Chamber of Commerce and Industry (ECCI) sent an opinion to the Finance Committee of the Riigikogu regarding the amendment of the Land Tax Act. The chamber does not support the removal of the annual cap on land tax, which would allow local governments to raise the land tax by up to 50% annually in the future. The chamber is also opposed to increasing the maximum land tax rate for business and industrial land from 1% to 2%.

The current regulation stipulates that regardless of the calculated land tax based on the new land valuation and tax rate, the land tax cannot increase by more than 10% of the previous year's land tax amount annually. According to the new proposed regulation, this principle will be changed so that the land tax may be increased by up to 50% annually, or if it is less than 20 euros, then the land tax will increase by 20 euros. Local governments may decide to keep the land tax increase percentage lower than 50%, but a minimum amount of 20 euros will be established nationwide.

In its statement, the chamber emphasized that changing the land tax rules in unstable conditions has a significantly negative impact on businesses, as it is a basic operational cost that is forecasted and budgeted for over longer periods. A sudden and disproportionate tax increase means that businesses find it difficult to plan their costs ahead, putting them at a disadvantage.

Additionally, it is planned to raise the maximum land tax rate for business and industrial land from 1.0% to 2.0% starting in 2025. The Chamber of Commerce is against the planned increase of the maximum land tax rate for business and industrial land, as combined with the increase of the annual land tax cap from 10% to 50%, the land tax paid by businesses may increase unreasonably.

Insufficient Impact Analysis and Underestimation of Affected Parties

The chamber considers the impact analysis in the explanatory memorandum of the draft to be insufficient, and it is necessary to further assess the cumulative impact of various taxes on businesses to understand how the planned amendments to the Land Tax Act will actually affect companies. Additionally, the impact analysis needs to specify how the land tax increase may affect essential services and their prices, as well as the overall impact on society and businesses.