The Estonian government has confirmed that it intends to raise additional tax revenues for the state budget through an increase in value-added tax on certain items and the possible cancellation of a proposed cut in personal income tax.
Following a meeting of the cabinet on Wednesday, it emerged that the special 5% rate of VAT on books, newspapers, medicines will be increased to 9%, with the lower rate abolished for all other items. The measure is set to take effect from July 1, 2009.
The standard rate of VAT in Estonia is currently 18%, and it would appear that there are no plans to alter this. However, it is less clear what the government's plans are regarding individual income tax, which at present stands at a flat rate of 21%. Under previously announced plans, the tax is due to be reduced to 20% in 2009, to 19% in 2010, and to 18% in 2011. The indications are that the government has agreed to postpone this tax cut programme until its budgetary situation improves.
Other revenue-raising proposals include an increase in excise tax on natural gas, and a rise in the rate of unemployment insurance.
The measures discussed by the cabinet are expected to raise an additional EEK7.4bn (EUR473mn) in revenues.
The government is set to review the current budget proposals on September 18.
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