President refuses to proclaim the thousand euro law

Photo: Peeter Langovits / Postimees

The requirement to declare transactions exceeding €1,000 reached no further than Kadriorg. Yesterday, president Toomas Hendrik Ilves refused to proclaim the Value-Added Tax Act and Accounting Act Amendment Act ratified by Riigikogu last week, whereby transactions of more than €1,000 ought to have been declared in annex to VAT declaration.

According to the President, the amendment – bitterly opposed by businessmen – was unconstitutional. As assessed by the President, the amendment would have constituted restriction to freedom of business, not to be justified by the hypothetical and unproven assumption that tax discipline would improve and tax hole shrink; or by the claim that this would help budget revenue.

«A restriction so intense could be viewed as constitutional only if it could be proven, by analysis of types of VAT-fraud and typical examples, that the current schemes of concealing turnover and VAT-fraud would become impossible by the new regulation and that these would be impossible to be replaced with new efficient fraud schemes,» said Mr Ilves.

The state desiring to check the risk-group entrepreneurs while imposing a resource-heavy added obligation upon the rest of businessmen would not be justified, thinks the President. Therefore, it cannot be claimed with confidence that the planned limit on business freedom would help to considerably improve VAT collection and avoid a situation where the state must return VAT to fraudsters which the latter have never paid.

Also, the President pointed out, the act would probably contradict European Union law.

Commenting on the President’s decision, finance minister Jürgen Ligi said that the overwhelming public interest requires improvements to reporting and inspection, there being no other known idea than the requirement, approved by Riigikogu, to complement tax return with the partner’s registry code.

«[The President’s decision] again shows that Estonia is heading in the direction where a group’s interests are considered noble and the public interests vicious. Compared to what is required from those standing for the rights of the society, nothing is required from arguments [presented] by interest groups. For me, there is the issue here of the morale of the opposite camp spokespersons – the talk is about closing budget holes, the deeds speak about a huge appetite to consume state privileges,» said the minister.

At the Tax Board estimation, a €1,000 limit on information of partners in transactions would have equipped them with overview of 60 per cent of transactions between companies which makes for 99 per cent of the value of all transactions.