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Estonia's new Government is planning a range of tax reforms aimed at encouraging corporate investment and reducing the tax burden for lower earners, the IMF has said in its Article IV report.
Under the reforms, the corporate income tax rate on regular dividend payments will be reduced to 14 percent.
Rather than lower social security contributions, as proposed by the previous government, Estonia will reduce labor taxes and the administrative burden for small businesses, and provide tax credits for rapidly growing enterprises and start-up companies.
Meanwhile, officials plan to more than double the basic allowance for income tax to EUR500 (USD535) per month, in a move likely to cost revenues worth over one percent of GDP.
There are also plans to introduce an excise on sugared beverages, a motor vehicle registration levy, a financial sector tax, and additional excises on products such as alcohol. A previously planned increase to the value-added tax for accommodation services will not go ahead, the IMF said.
In response to the proposals, the IMF said "the stimulus associated with the reform of the personal income tax should be reduced or at least spread out over several years by gradual implementation, while preserving its welcome redistributive properties."
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