At night sitting, the Riigikogu concluded the second reading of one Bill and the first reading of three Bills, among them also Bills concerning tax changes and family benefits.
The Insurance Activities Bill (8 SE), initiated by the Government, passed the second reading in the Riigikogu. Its aim is to ensure that the insurers established in Estonia are solvent, sustainable and transparent in their activities, and the supervision mechanisms applied help protect the interests of customers.
Martin Helme, Jüri Adams, Kadri Simson, Remo Holsmer and Mart Helme took the floor during the debate.
After the debate, the Riigikogu voted on 37 motions to amend.
The motion made by the Centre Party Faction to suspend the second reading of the Bill was not supported. With 38 votes in favour and 56 against, the motion was not supported, and the Riigikogu concluded the second reading of the Insurance Activities Bill.
The Riigikogu concluded the first reading of three Bills:
The Minister of Finance Sven Sester gave the Riigikogu an overview of the Bill on Amendments to the Social Tax Act, the Income Tax Act and Other Acts (41 SE), initiated by the Government, and replied to the questions of the Members of the Riigikogu. Sester said in conclusion that the proposed amendments would shift the tax burden from workforce more towards consumption.
Remo Holsmer who made a report on behalf of the Finance Committee gave an overview of the discussions that had been held in the Committee sittings.
The Bill provides for reduction of the rate of social tax from the current 33 per cent to 32.5 per cent in 2017, and to 32 per cent starting from 2018. As a result of the amendment, the tax burden of enterprises will decrease by 40.5 million euro in 2017, and the tax burden of enterprises will decrease by at least 86 million euro as of 2018.
With the amendments to the Income Tax Act, the basic exemption rate will be gradually increased over four years to 205 euro per month by 2019. Next year, it is planned to amount to 170 euro. The basic exemption deductible from pension will be raised from the current 220 euro to 225 euro per month, in order to ensure income tax exemption on the average pension. At the same time, the limit of the daily allowance for assignment abroad exempt from tax will be increased to 50 euro, instead of the rate of 32 euro that has been in place since 1994.
The Bill organises the rules for the taxation of income from rent so that, on the income tax return, 20 per cent will be deducted from income received under a residential lease contract, without submission of expense receipts, for covering the expenses related to the lease.
In connection with the plan to increase child benefits, the increased basic exemption upon provision of maintenance to children will be separated from the rate of general basic exemption and will be fixed at today’s level of 1848 euro per year, that is, 154 euro per month.
The total amount of deductions allowed from the taxable income of natural persons will be reduced from 1920 euro to 1200 euro. The amendment concerns the right to deduct from income the housing loan interests and training expenses paid, and the charitable gifts and donations made starting from 2016. In this connection, the current 5 per cent rate regarding the deduction of donations will be abandoned.
Starting from 2016, the expenses on driving schools and adult hobby training will no longer be treated as deductible training expenses. No changes will be made to the structure of the expenses related to formal education and in-service training, and hobby education of young people aged up to 18, and they will remain deductible.
With the amendments to the Value Added Tax Act, the VAT on accommodation services will be raised from 9 per cent to 14 per cent starting from the beginning of 2017. The raising of the tax rate is planned to increase the receipt of value added tax by approximately 10.2 million euro in 2017.
With the amendments to the excise duty Acts, alcohol and tobacco excise duty rates will be raised. The Bill will replace the 10 per cent rise the of the excise duty rate for alcohol due in 2016 with a 15 per cent rise of excise duty rate as of 1 February 2016. As a result of the raising of alcohol excise duty, an estimated additional 22 million euro of excise duty and VAT income will be received in 2016.
Tobacco excise duty will be raised by additional three per cent in 2016–2018, in addition to the five per cent established earlier, while the rise due in 2016 will enter into force on 1 June 2016, that is, half a year later than provided for by the current Act. As a result of the raising of tobacco excise duty, an additional 24 million euro of excise duty and VAT income will be received in 2016.
Excise duty on alcohol and tobacco will also rise by 10 per cent in 2019 and 2020, except for the excise duty on wine which will rise by 20 per cent. The rate of excise duty on fermented beverage will also be raised by 20 per cent, so that it would be equal with the rate of excise duty on wine.
The rate of excise duty on petrol will be raised by 10 per cent over the next three years. The rate of excise duty on diesel fuel will be raised by 14 per cent as of 1 January 2016, and by 10 per cent in 2017–2018. With a view to more equal taxation of two most common motor fuels – diesel fuel and petrol –, taking into account the energy value of these fuels, the rise of the rate of excise duty on diesel fuel will be greater next year. When raising the rate of excise duty on light heating oil, the rises of the rate of excise duty on diesel fuel will be followed closely. Starting from 2016, the rate of excise duty on diesel fuel for specific purposes will be 27 per cent of the rate of diesel fuel.
The rate of excise duty on heavy fuel oil will be raised from 15.01 euro to 58 euro per 1000 kg, and the rate of excise duty on shale-derived fuel oil will be raised from 15.01 euro to 57 euro per 1000 kg as of 2016.
The rate of excise duty on solid fuels used for heat production, that is, coal, lignite, coke and oil shale, will rise from 0.3 euro to 0.93 euro per one gigajoule of the upper calorific value of these fuels starting from 2016.
As a result of the raising of fuel excise duty, an additional 64.7 million euro of excise duty and VAT income will be received in 2016. The due date for payment of the excise duty will be shifted from the 15 day of the calendar month to the 20th day of the calendar month. With the changes in the rates of excise duty, the state budget expenditures will increase by a total of approximately 111 million euro in 2016.
The members of the Riigikogu who took the floor in the debate analysed the draft budget and presented their positions. The speeches of the members of opposition parties were critical of the draft. Martin Helme, Andres Herkel and Kadri Simson took the floor during the debate.
The Estonian Free Party Faction and the Estonian Centre Party Faction moved to suspend the first reading of the Bill. With 36 votes in favour and 56 against, the motion was not supported, and the Riigikogu concluded the first reading of the Bill concerning tax changes.
The deadline for motions to amend the Bill is 8 June.
The Bill on Amendments to the Labour Market Services and Benefits Act and Other Acts (40 SE), initiated by the Government, also passed the first reading. It will establish an annual income tax refund for working people with low incomes. The aim of the refund will be to encourage people to accept jobs or stay in the labour market even when the remuneration received for working is small.
The Minister of Finance Sven Sester said that the aim of the Bill is to establish a refund system directed at improving the situation of working people with low salaries.
The Chairman of the Social Affairs Committee Aivar Kokk gave an overview of the discussions that had been held in the Committee sittings and moved to conclude the first reading of the Bill.
Application for refund of income tax will be open to adults who have worked full-time during at least six calendar months during the year preceding the year when the application is submitted. The amount of the refund of income tax will depend to a significant extent on the income earned, the number of months worked, and the structure of the income. Therefore, the refund may be different for each person.
The amount of the refund of income tax will depend to a significant extent on the income earned, the number of months worked, and the structure of the income. Therefore, the refund may be different for each person. For example, if a person works full-time in 2016, his or her salary is 410 euro and he or she receives no other income and uses no other tax exemptions besides the basic exemption rate, then his or her prospective refund will be 45 euro for every month worked, that is, about 540 euro per year.
The amount of refund of income tax will grow with the increase of income and, following a similar example, it will be the highest at a gross salary of 480 euro (708 euro per year). In the case of income exceeding this amount, the amount of refund will begin to decrease and will reach zero at a gross salary of 649 euro.
The Minister stressed that this 703 euro would be maximum refund, and the actual refund of a person would depend on the income tax paid by the person, that is, on how many tax exemptions the person has used, such as the basic exemption rate starting from the second child, or the tax exemptions on interests on housing loans, donations and training expenses.
When the Act enters into force, it will be possible to submit applications for refund for the first time in 2017 together with submission of the income tax return of natural person. In 2017, expenses are forecast to be 37.8 million euro.
Marika Tuus-Laul, Monika Haukanõmm and Helmen Kütt took the floor during the debate.
The motion made by the Estonian Free Party Faction to reject the Bill at the first reading was not supported. With 9 votes in favour and 50 against, the motion was not supported, and the Riigikogu concluded the first reading of the Bill.
The deadline for motions to amend the Bill is 5 June.
The Bill on Amendments to the State Family Benefits Act and Amendments to Other Associated Acts (38 SE), initiated by the Government, passed the first reading. It is intended to raise the child benefit for the first and the second child of the family to 60 euro per month and to establish a new benefit for families with many children. According to the Bill, the child benefit will be 50 euro starting from 2016, and 55 euro starting from 2018, and will increase to 60 euro starting from 2019. The amount of child benefit starting from the third child will not change, and it will continue to be at 100 euro per child.
At the same time a new family benefit, the benefit for families with many children, will be established for families with three or more children. This benefit will amount to 200 euro for families raising three to six children, and to 370 euro for families with seven or more children. The existing parental benefit for parents raising seven or more children will be abolished as a separate benefit.
The Minister of Social Protection Margus Tsahkna who presented the Bill pointed out that, while the state family benefits budget totals 178.8 million euro this year, the impacts of the amendments proposed in the Bill will increase the state family benefits budget to 194.6 million euro next year, 216.3 million euro in 2017, 252.1 million euro in 2018 and 267.6 million euro in 2019.
Heljo Pikhof took the floor during the debate.
The deadline for motions to amend the Bill is 5 June.
The Riigikogu sitting began on 3 June at 2.00 p.m. and ended on 4 June at 3.59 a.m.
The verbatim record of the sitting (in Estonian): http://stenogrammid.riigikogu.ee/et/201506031400
Video recordings of the Riigikogu sittings can be viewed at https://www.youtube.com/riigikogu
(NB! The recording will be uploaded with a delay.)
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