Tax burden in Estonia eased in 2011 - survey

BNS
Copy
Please note that the article is more than five years old and belongs to our archive. We do not update the content of the archives, so it may be necessary to consult newer sources.
Photo: Mihkel Maripuu

The tax-to-gross domestic product (GDP) ratio in Estonia declined 1.3 percent year on year to 32.8 percent in 2011, which puts Estonia in 18th place in the European Union.

Estonia's tax burden decreased in 2011 thanks to the rapid economic growth based on export, spokespeople for the Finance Ministry said citing data from the publication "Taxation Trends in the European Union." Since the positive effect of export on tax receipts is smaller than of domestic consumption, nominal GDP grew significantly faster than tax receipts. Besides the technical effect from the partial resumption of contributions by the state into people's second pillar pension plans reduced the tax burden.

In 2011, the overall tax ratio, that is, the sum of taxes and social contributions in the 27 EU member states amounted to an equivalent of 38.8 percent of the same countries' GDP, a figure 0.5 percent higher than in 2010.

Estonia ranked in the lower half of the table in 2011. The member states with the highest tax ratios were Denmark with 47.7 percent and Sweden with 44.3 percent.

The country with the lowest tax ratio in 2011 was Lithuania, where the ratio of taxes to GDP was 26 percent. The Estonian ministry pointed out that that effectiveness of tax collection plays an important part in how big a country's tax revenues are. While a higher ratio of tax revenue to GDP may on the one hand serve as an indication of a country's ability to effectively collect taxes, on the other hand tax burden may turn out lower than average under conditions of high tax rates if the tax discipline of businesses and residents is low.

Compared with 2000, the biggest decline in the tax ratio occurred in Slovakia -- by 5.5 percentage points to 28.5 percent. In six countries the tax ratio increased, with the biggest rate of increase posted by Cyprus, which saw its tax ratio climb from 30 percent to 35.2 percent in 11 years. Year on year, Estonia and Sweden posted the biggest reductions and Portugal and Romania the biggest increases in the tax ratio.

The Estonian tax ratio stayed below 32 percent until 2008, but moved up in 2009 as a result of a rapid reduction in export, suspension of payments into residents' second pillar pension funds and tax hikes necessitated by the crisis. From 2010 onwards the Estonian tax ratio has been declining and according to an estimate by the Finance Ministry it will reach 31.4 percent of GDP by 2017.

"Taxation Trends in the European Union" said that like in many other new member states, the share of indirect taxes in total taxation is relatively high in Estonia, being 43.1 percent in 2011, which is somewhat above the EU average of 34.5 percent. Social contributions also form an important proportion of total taxation, making up 36.9 percent in 2011, more than three percentage points above the EU average. The share of direct taxes, 20.0 percent in 2011, has fallen around ten percentage points since the late 1990s, following reforms that increased the basic allowance and decreased the tax rates on both personal and corporate income.

Local governments receive 13.3 percent of tax revenues in Estonia, which is the seventh highest proportion in the EU27. Revenue from environmental taxes formed 8.6 percent of total taxation in 2011, exceeding the EU average by more than two percentage points. The share of environmental tax revenues displays a steadily rising trend from 1995 onwards, reflecting partly the need to adjust the excise duties up to the EU minimum rates, but also a deliberate policy of the government to finance the cuts of personal income taxes by increases in consumption and environmental taxation.

"Taxation Trends in the European Union" is an annual publication of Eurostat and the European Commission.

Comments
Copy

Terms

Top