Scientist: income tax incentive for companies now a relic

Photo: Admiral Markets

According Urmas Varblane, academician and a professor of international enterprise at University of Tartu, the companies’ exemption from income tax, once a boost for Estonian economy, has now become a relic.

Companies need not pay income tax on the profits they invest into fixed assets such as buildings and other structures. At the same time, the taking out of dividends or money is taxed more heavily than in many other countries.

This was one of the reforms of the Reform party. «Such logic of exemption from income tax, tied to investments into buildings and structures, serves to enhance an economy at a certain period of time, when initial investments are needed,» said Mr Varblane.

«In the 1990ies, the method was really welcome,» said he. «Now, we are talking about the economy being transferred into a science-based phase. During which we need to consider, what the new fixed assets are – the human resources.»

According to Varblane, the currents system, however, favours a pre-industrial-revolution type economy. «The systems favours pouring loads of money into machinery and structures, meant for employees with very low salaries,» said he.

Instead of that, it would, according to Mr Varblane, be prudent to draw out the profit and use it to hire people. Alas, in that case, corporate income tax needs to be paid.

In 2011, Swedbank only paid about one per cent corporate income tax of its €182m operation profit here, in Estonia. «In Sweden, however, all income tax is nicely delivered,» added Mr Varblane. Thus, Estonian bank customers serve to uphold the Swedish welfare state.

In the estimation of Mr Varblane, Estonia should have a level and fair income tax both from companies’ dividends and investments into fixed assets. Then, maybe, foreign companies would not carry out all the money they’ve made here.