Republic of Estonia: Selected Issues and Statistical Appendix
Author:
International Monetary Fund
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Publication Date:
11 Feb 1998
eISBN:
9781451812329
Language:
English
Keywords:
ISCR; CR; Estonia; government; bank; kroon; market; competitiveness indicator; kroon terms; appreciation of the kroon; currencies of Finland; appreciation equivalent; Real effective exchange rates; Labor costs; Real wages; Baltics; labor productivity in Estonia
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This Selected Issues paper and Statistical Appendix examines the developments in the intergovernmental fiscal relations for the Republic of Estonia. The paper highlights that intergovernmental relations in Estonia have been marked in recent years by a strong push in the direction of fiscal decentralization. This trend has been part of the broader process of structural change, including privatization and liberalization of markets in Estonia. The paper analyzes the evolution of the financial sector. It also examines European Union accession and the economic policy of Estonia.

Abstract

This Selected Issues paper and Statistical Appendix examines the developments in the intergovernmental fiscal relations for the Republic of Estonia. The paper highlights that intergovernmental relations in Estonia have been marked in recent years by a strong push in the direction of fiscal decentralization. This trend has been part of the broader process of structural change, including privatization and liberalization of markets in Estonia. The paper analyzes the evolution of the financial sector. It also examines European Union accession and the economic policy of Estonia.

V. Some Competitiveness Indicators

95. Two commonly used measures of competitiveness are calculated for Estonia in the sections below.58 The first measure examines competitiveness in terms of the real effective exchange rate (REER), and the second, in terms of labor costs. The evolution of both the REER and labor costs in Estonia is compared with that in selected other countries in order to assess relative loss or gain in competitiveness. The analysis suggests that, although the real exchange rate has appreciated substantially against most trading partner currencies, Estonia is still competitive, mainly as a result of large increases in the productivity of its labor force.

96. Real Effective Exchange Rate. Figure 3 shows the nominal and real effective exchange rate with weights corresponding to the share of each country in Estonia’s trade. An increase in the real exchange rate index implies an appreciation of the kroon in real terms. The REER indicates that, with the exception of a brief period in the second half of 1995, the kroon has been appreciating against the currencies of Estonia’s major trading partners, with an overall appreciation equivalent to about 45 percent between 1994 and the first half of 1997 (Table 11). However, currencies of the other Baltic countries and Russia have also appreciated during this period. The litai (Lithuania) appreciated by 28 percent, the lats (Latvia) by 17 percent, and the ruble (Russia) by 42 percent. Yet, the path of appreciation has been very different across the four countries. Although the kroon appreciated much more than the Latvian or Lithuanian currencies in both 1995 and 1996, the rate of appreciation has slowed down in recent months (Table 12).

Figure 3.
Figure 3.

Estonia: Real Effective Exchange Rate, 1994-97 1/

Citation: IMF Staff Country Reports 1998, 012; 10.5089/9781451812329.002.A005

Source: Fund staff calculations.1/ Index 1995Q1 = 100.
Table 11.

Estonia: Real Exchange Rate Index, 1994-97

(1995Q1 = 100)

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Sources: Estonian authorities; and Fund staff estimates.
Table 12.

Estonia: Real Effective Exchange Rate, 1994-97

(Change in percent)

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Source: International Financial Statistics.

January-June 1997 compared with January-June 1996.

97. Labor Cost Indices. To better capture the effect of costs, this section looks at competitiveness in terms of labor costs. Table 13 shows U.S. dollar wages, and Table 14 real wages for Estonia, Latvia, Lithuania, and Russia. Dollar wages in Estonia are still low by western standards, though they are higher than in the other Baltic countries and Russia. The same is true of real wages: while real wages increased by about 16 percent in the other two Baltic countries and declined in Russia between 1994 and the first half of 1997, they increased by 28 percent in Estonia during this period. At the same time, labor productivity in Estonia rose by over 20 percent during this period so that unit labor costs have increased only marginally (Figure 4). This remarkable growth in labor productivity is mostly attributable to enterprise restructuring which has resulted in the replacement of old capital with modern machinery and equipment, financed in large part by foreign direct investment coming through joint ventures with a number of countries (principally Finland, Sweden, and Germany).

Table 13.

Estonia: Nominal Wages, 1994-97

(In U.S. Dollars)

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Sources: International Financial Statistics; and Fund staff estimates.
Table 14.

Estonia: Indices of Real Wages, 1994-97 1/

(1995Q1 = 100)

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Sources; International Financial Statistics; and Fund staff estimates.
Figure 4.
Figure 4.

Estonia: Competitiveness Indicators, 1994-97 1/

Citation: IMF Staff Country Reports 1998, 012; 10.5089/9781451812329.002.A005

Sources: OECD; Estonian authorities; and Fund staff estimates.1/ Based on major trading partners’ unit labor costs (in U.S. dollars).2/ Kroon unit labor cost deflated by the consumer price index (1993 Q1=100).3/ Based on trade weighted CPI.

98. Growth in Exports and Competitiveness. Finland, Sweden, and Russia are the three major trading partners of Estonia, accounting for almost 50 percent of total exports. The kroon has appreciated in real terms against both the currencies of Finland and Sweden, and has remained fairly constant with respect to that of Russia. Yet Estonia has gained market shares in Finland and Sweden vis-à-vis other European countries (Table 15). Exports (in kroon terms) to Finland and to Sweden increased by 46 percent and 63 percent, respectively, during the first half of 1997 compared with the same period last year. Estonia’s market share in Russia has declined marginally. The consistent increase in the share of and rapid reorientation of trade to industrial countries suggests that Estonia has been able to increase its competitiveness, and that labor productivity gains have outweighed the effects on exports of real effective exchange rate appreciation.59

Table 15.

Estonia: Market Share of Exports to Major Trading Partners, 1994-96 1/

(In percent)

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Source: Direction of Trade Statistics.

Measured as-ratio of Estonian exports to exports from Europe.

APPENDIX I SUMMARY OF THE TAX SYSTEM1

(As of October 1, 1997)

I. Personal income tax

(Income Tax Law, effective January 1, 1994)

A. Tax Base

1. Residents pay tax on their worldwide income. Taxable income includes, in particular, income from employment (salaries, wages, bonuses and other remuneration); business income; investment income (interest,2 royalties, and rent); gains from disposal of assets; pensions and scholarships (except state pensions and state scholarships) and alimony payments received.3 Taxable income does not include dividends, which are subject to a final tax as part of enterprise income. Unilateral relief for double taxation, if income derived from abroad, is available in the form of ordinary tax credit for tax paid abroad. The credit is limited to the Estonian tax computed on the item of income. If the income is derived from several foreign countries, the computation is made separately for each country.

2. Nonresidents pay tax on their income from Estonian sources as listed in the Income Tax Law: income from work under a labor contract or contractor’s agreement in Estonia; income from a business carried on in Estonia; dividends paid by Estonian companies; interest payable by the Estonian state and residents; income from loans secured by immovable property located in Estonia; royalties (authors’ remuneration, income from the sale or other use in Estonia of a patent, work protected by copyright, trade mark, software, information, and know-how); income from the lease of assets located in Estonia; and gains from disposal of assets located in Estonia.

B. Exemptions

3. For resident persons, there is a basic exemption of EEK 6,000 (since January 1, 1996, formerly EEK 3,600) during the period of taxation. The following income of such persons is not subject to tax: dividends taxable under the Income Tax Law; certain capital gains; state pensions and state scholarships; fringe benefits; indemnification paid to an employee for work accidents; per diem and accommodation reimbursements for business trips; compensation for the use of private vehicles; amounts paid to employees to cover representation costs; insurance proceeds and other payment received under insurance contracts; child allowances and other subsidies and compensation paid from the State, local, or Social Insurance budgets; inheritances and gifts received; assets restituted in the course of property reform; and lottery winnings; compensation prescribed by law or established by the Government of the Republic of Estonia and international cultural and scientific awards and prizes; assets distributed in the course of property reform; expropriation payments and compensation received for expropriation.

4. Persons whose income is not subject to taxation comprise: foreign diplomatic representatives, consular representatives, special or diplomatic missions, representatives of international or intergovernmental organizations and cooperation programs exercising their official functions in Estonia, plus persons employed with them who are not citizens or permanent inhabitants of Estonia. The above mentioned persons, with the exception of the members of representations of cooperation programs must, be registered in the Ministry of Foreign Affairs.

5. Not subject to tax is the documented taxable income derived by a natural person from the realization of self-produced, unprocessed agricultural products in 1995 up to the amount of EEK 35,000.

C. Rate Structure

6. There is a general flat rate of 26 percent of taxable income. Since January 1, 1996, interest income paid by resident credit institutions to natural persons is subject to a flat rate of 10 percent. The withholding tax rate on rental payments is 5 percent. The withholding tax rate on royalties, payments to nonresidents for services provided in Estonia, and payments to nonresident artists and sportsmen is 15 percent. The period of taxation is the calendar year.

7. Employment income is subject to a withholding tax at the general rate of 26 percent. The withholding agent (enterprise or employer) has the obligation to remit the relevant amounts to the tax authority monthly. A tax payer who has only income from one place of employment on which income tax has been withheld or whose annual income does not exceed EEK 6,000 has no obligation to file a tax return. Otherwise, tax returns are due by March 31 of the year following the period of taxation.

D. Tax allocation

8. From January 1, 1996, tax revenue from income tax of persons accrues by 44 percent of the yield to the state budget and by 56 percent of the yield to the local budget of the local authorities of the place of residence of the taxpayer. Formerly, the allocation was 48:52 percent, respectively.

II. Enterprise income tax

(Income Tax Law, effective January 1, 1994)

A. Eligibility

9. Resident or nonresident enterprises whose income is subject to taxation under the Income Tax Law. Legal entities are residents in Estonia if they are registered there. Limited partnerships are taxed as separate taxable entities. Income on a general partnership with more than 10 partners or with a nonresident partner, are also taxed as separate taxable entities.

B. Tax Base

10. Residents pay tax on their worldwide income (see I above). Dividends are subject to a final tax at the general rate of 26 percent, but the company making the distribution will be entitled to set off any tax charged against its corporate tax liability during the same tax year or following tax years. Also a company owning 5 percent or more of the capital stock of another company or investment fund establishes a dividend account into which it shall add the net amount of dividends (dividend on which income tax has been charged) distributed to the company as the owner, by the other company. When making dividend distributions to its own stockholders or shareholders the amount of dividends to be distributed is deducted from the dividend account, whereby the amount is not subject to income tax. Dividends received by a resident company from abroad are generally taxable in Estonia and credit is granted for withholding tax paid abroad. Fringe benefits provided are subject to withholding tax at the flat rate of 26 percent.

11. In making dividend distributions to shareholders, an enterprise is obliged to pay income tax equal to 26/74 of the amount of the dividends.

12. Nonresidents pay tax on their income from Estonian sources, as listed in the Income Tax Law (see I above).

C. Deductions

  • Documented expenses incurred in relation to entrepreneurship during the taxation period, including expenses for training and retraining of employees as well as losses from disposal of assets, and tax withheld on dividends distributed.

  • Annual depreciation of fixed assets used in entrepreneurship: up to 8 percent for each building, construction and their structural components; up to 40 percent of the “adjusted cost” of the pool of other depreciable assets (less the selling price for assets disposed of).

  • Expenses made to improve, repair, and supplement fixed assets may be deducted up to 5 percent of the adjusted cost (on the last day of the previous tax period) of the fixed asset/pool of fixed assets.

  • Charitable contributions, up to 10 percent of taxable income after deductions to societies, associations, and other organizations not generating income.4 Reserve funds created by credit institutions to cover losses up to 5 percent of loan portfolio: as the loan portfolio is reduced, the amount of the “excess” tax exempt reserve fund is treated as income.

  • Entertainment expenses and other expenses not directly related to entrepreneurship are regarded as expenses not directly related to entrepreneurship. Up to 2 percent of such expenses (less allowable deductions) may be deducted.

13. If deductions exceed income in taxation period, the excess may be carried forward up to five tax periods.

D. Exemptions

  • Non-profit societies, associations and organizations.

  • Production enterprises of societies for disabled persons.

  • Intergovernmental organizations and representations of cooperation programs; non-profit associations and foundations established by foreign governments under intergovernmental agreements and registered in such foreign countries, operating in Estonia.

E. Rate Structure

14. Flat rate of 26 percent of taxable income. Insurance companies pay 4 percent tax on premiums accrued during the period (except life, pension, and health insurance, where the tax is 1 percent of insurance payments). The period of taxation is the calendar year or business year (if different to the calendar year). Advance payments of taxes are made monthly. From January 1, 1997, advance payments are 1/12 of the income tax calculated in the income tax return for the previous tax period.5

F. Incentives

15. None.

G. Tax Allocation

16. Tax accrues wholly to the state budget. Tax is administered by the National Tax Board.

III. Value-added tax (VAT)

(Law on Value-Added Tax, effective January 1, 1994)

A. Eligibility

17. Enterprises whose taxable supply exceeds EEK 250,000 in a calendar year.

B. Tax Base

18. Tax is charged on transactions in goods and services in Estonia and on importation of goods (excluding exemptions).6

C. Exemptions

  • Services exempt are: education; public mail; medical and health-related; funeral and related; banking and insurance; organization of gambling; lottery tickets; letting of housing; and treatment of dangerous waste; municipal public sauna services.

  • Goods exempt include: medicines, health equipment and medical diagnostic goods.

  • Goods imported by persons with diplomatic status, etc., or certain other goods and services purchased by such persons (as determined by the Ministry of Finance). Assets imported for nonprofit purposes (as determined by the Government of Estonia).

  • Goods imported by individual persons subject to certain limits set by the Ministry of Finance.

D. Rate Structure

19. The tax rate is 18 percent of taxable value.7 The VAT rate is zero for: (1) exports; (2) subscribed periodicals published and printed in Estonia; (3) tickets of theaters registered in Estonia; (4) textbooks and workbooks for basic schools and gymnasiums; (5) goods and services sold to non-profit associations and foundations registered in Estonia, and to budgetary state and local government institutions for money granted to these juridical persons and institutions as foreign loans and as unrecoverable foreign aid by organizations found in a list provided by the Government of the Republic of Estonia; and (6) tickets for concerts of state concert organizations.8 The tax period is the calendar month and VAT returns are due to be filed by the 20th day of the month following the relevant period.

E. Tax allocation

20. Tax accrues wholly to the state budget. Registration of enterprises is undertaken by the National Tax Board, which also administers VAT on domestic goods and services. The Customs Board administers the tax for imports.

IV. Social tax

(Law on Social Tax, effective January 1, 1991; major changes effective April 1, 1994)

A. Tax Base

21. Employers’ payments in cash and in kind made to persons. Natural persons pay tax on income derived from entrepreneurship, but for each insurable person able to work not less per month than the amount calculated from the official minimum wage, and not more than the amount calculated from fifteen-fold minimum wage.

B. Tax Rates

22. Social tax rate is 33 percent of the taxable amount, with effect from April 1, 1994. Taxes are due monthly and paid by the 20th of the following month.

C. Tax Allocation

23. The rate of the part accruing to the national social insurance budget is 20 percent; the rate of the part accruing to the national health insurance budget is 13 percent.9 Enterprises of the societies of the disabled, sate and municipal establishments and establishments providing long-term care where at least half of the employees are disabled persons, as well as enterprises engaging in occupational therapy for the mentally disabled, operating under state license, pay 23 percent of the taxable amount (10 percent for social insurance, 13 percent for health insurance). The tax is administered by the National Tax Board and the National Social Insurance Board.

V. Land tax

(Law on Land Tax, effective July 1, 1993)

A. Eligibility

24. National land tax is paid on all land except: (1) where economic activity is prohibited; (2) land attached to buildings of diplomatic or consular missions of foreign countries; (3) cemeteries and land under churches and temples of congregations; (4) land in state ownership; (5) land used by foreign country or international organization; (6) land in general use and reserve land of the local authority on the decision of the Government of Estonia. In addition, local land tax is not paid on land in municipal ownership or land in general use based on the decision of the local authority.

B. Tax Base

25. Taxable value determined by Law on Land Value.

C. Exemptions

26. Arable land for producing agricultural products and natural grassland are exempt from national land tax until December 31, 1997.

D. Tax Rates

27. Land tax rate is 0.5-2.0 percent of taxable value. Tax on land where economic activity is restricted by law is charged either at 25, 50, or 75 percent of the tax rate. Taxes are paid quarterly, on 15th of February, May, August, and November.

E. Tax Allocation

28. The tax accrues 100 percent to local budgets of the primary level local authority. The tax is administered by the National Tax Board.

VI. Gambling tax

(Law on Gambling Tax, effective November 1, 1992; amendments effective February 1, 1996)

A. Eligibility

29. Income from operating games of skill, totalizator, betting, and lotteries. Gambling boards and machines used for games of chance located on licensed premises.

B. Tax Base

30. Stakes from which winnings paid out have been deducted. Tax paid by authorized operators. Tax period is on month for lotteries, and games of chance or skill. For totalizator, period is the betting period (which must be within the same financial year). Tax declaration (even if no taxable income) and tax settlement are due by 15th day of calendar month following tax period.

C Tax Rate

31. For games of chance rate is EEK 3,000 per gambling machine and EEK 10,000 per gambling board. For operating betting rate is 30 percent; for totalizator rate is 5 percent; for games of skill rate is 18 percent; and for lotteries rate is 16 percent.

D. Tax Allocation

32. For operating games of chance, skill, betting and totalizer, five percent of tax is transferred to relevant local budget where gambling premises located. Of the revenues accruing to the state budget from these same activities, 30 percent accrues to the Fund of Estonian National Culture, and 7 percent to the Estonian Red Cross, by the 25th of the month after collection. The remaining 63 percent shall be used to support programs directly assisting children, families, the elderly and disabled persons. Revenue from lotteries accrue to the state budget and for targeted use (mainly cultural and communal subsidies). Revenue from lotteries operated to finance specific programs or events shall be used only for those purposes. The tax is administered by the National Tax Board.

E. Excise taxes10 11

VII. Tobacco

(Law on Tobacco Excise Tax, effective January 1, 199512)

33. Tobacco products (smoking tobacco, cigarettes, Russian cigarettes, cigars, cigarillos, snuff, chewing tobacco, other unspecified tobacco products) manufactured in Estonia or imported into Estonia are subject to the excise tax.13

34. Distribution of tobacco products without tax revenue stamps is prohibited. The sale of tobacco products by piece (except cigars), unpacked or out of an open consumer package is forbidden.

35. Revenue accrues into the state budget: 3.5 percent of the receipts are transferred to the Estonian Cultural Endowment Fund; of this, 0.5 percent goes to the physical culture and sports foundation. Tax is paid by the Estonian manufacturer or the importer, as appropriate. Excise tax is paid upon purchase of tax revenue stamps, the price of which constitutes the excise tax rate. Enterprises licensed to produce, import, or export tobacco products have the right to purchase tax stamps. The Ministry of Finance adjusts the tax rate according to the consumer price index. Excise tax paid is refunded to the purchaser of the stamp upon return of a ruined revenue stamp or in case the tax stamp is destroyed in the presence of a representative of the Tax Board.

36. Excise tax is not charged on tobacco products that are exported; or that are in transit through Estonia; or which are sold upon departure from Estonia after passing, and upon arrival to Estonia before passing, customs and passport controls; or owned by juridical foreign persons and admitted temporarily (subject to re-exportation in the same state) in limited amounts for display at exhibitions, fairs and shows.

37. The Ministry of Finance prescribes the order of issuing, using, returning and paying for tax stamps. The tax is administered by the National Tax Board and the Customs Board. Rates are EEK 3 for each unit of taxable products, which are: filtered, unfiltered, and Russian cigarettes; cigarillos; cigars; smoking tobacco; snuff; chewing tobacco; and other tobacco products.14

VIII. Motor fuel

(Law on Motor Fuel Excise Tax, effective July 1, 1993)

38. Excise tax is imposed per liter and per kilogram, on petrol (EEK 1.8 per liter and EEK 2.4 per kilogram), diesel oil (75 sents per liter and 89 sents per kilogram), aviation kerosene (EEK 2.3 per liter and EEK 2.87 per kilogram), aviation gasoline (EEK 2.3 per liter and EEK 3.15 per kilogram), liquid gas used as motor fuel (EEK 1.1. per liter and EEK 2.0 per kilogram), compressed gas used as motor fuel (EEK 1.1 per cubic metre and EEK 1.1 per kilogram) as well as lubricated motor oil (20 sents per liter and 22 sents per kilogram) imported into Estonia and produced in Estonia.

39. Tax is imposed on imported motor fuel and oil. Motor fuel produced in Estonia which is exported is exempt from tax, as is fuel contained in vehicle standard tanks. The producer of motor fuel and oil as well as the importer of liquid and compressed gas used as motor fuel pays excise tax upon sale, exchange, transfer (including as fringe benefits), or own-consumption.

40. Refunds are provided to diplomatic and consular missions of foreign countries as well as representatives of international organizations and cooperation programs and persons with diplomatic status.

41. Tax revenue accrues to the state budget. The tax on domestic goods and on imported liquid and compressed gas used as motor fuel is administered by the National Tax Board. The Customs Board administers the tax on imported motor fuel and oil, except liquid and compressed gas used as motor fuel.

IX. Alcohol

(Law on Alcohol Excise Tax, effective April 1, 1992)

42. Excise tax is imposed on all wine, beer, spirits, and alcoholic beverages produced in Estonia or imported into Estonia (less any duty-free allowances). Tax accrues to the state budget; 3.5 percent of excise tax receipts shall be transferred to the Estonian Cultural Endowment Fund.

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Alcoholic beverages and spirits

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43. National Tax Board administers excise taxes on domestic production, while the Customs Board administers excise taxes on imports.

X. Packaging

44. Packages filled in Estonia and imported into Estonia are subject to the excise tax.

45. Fifty percent of the excise tax receipts accrue to the state budget, and 50 percent to the Environment Fund.

46. The tax is paid by the importer of packages or by the user of packages, i.e. who fills packages with goods.

47. Excise tax exemptions are similar to those for other excisable goods, and in addition, the excise tax is not charged on packages of which at least 40 percent is recovered until December 31, 1998 and on packages of which at least 60 percent is recovered as of January 1, 1998.

48. The National Tax Board administers the tax on domestic packages, and the Customs Board administers the tax on imported packages.

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Excise tax shall be computed for both rates and added up.

XI. Motor vehicles

(effective April 1, 1995)

49. From April 1, 1995 the customs duty on automobiles, snowmobiles and motorcycles was replaced with a motor vehicle excise duty, determined by engine capacity and age of vehicle. Rates are EEK 1 per cubic centimeter (with some minor exceptions) up to 3,000 cubic centimeters and EEK 3 per cubic centimeter thereafter. Rates determined by age are (1) EEK 1000 for new motor vehicles; (2) EEK 100 per year for used motor vehicles, up to 12 years; and (3) for used vehicles, EEK 150 per year for 13 and more years.

XII. State fees

(Law on State Fee, effective January 1, 1991, substantially amended April 1, 1994)

A. Eligibility

50. State fees are paid by persons and legal entities according to established tax rates for performing judicial procedures and issuing documents. Namely, filing applications for legal proceedings; witnessing copies, authenticating signatures, and powers of attorney; registration of deeds relating to personal status; issuing entry visas, residence and work permits; registration and re-registration of enterprises; submitting applications for the import or export of goods and the state operating license; issuance of an operating permit or certificate of registration; issuance of hunting certificate; procedures relation to registering acquisition of real estate; procedures performed in the Patent Department or to keeping in force documents to protect industrial property; registration of ships and civil aircraft; notary and other procedures performed in overseas representations; procedures relating to citizenship and passports; and other specified procedures.

B. Tax Rates

51. Rates are specified by law and the fee is paid before submitting the application, executing the procedure, or issuing the document. Fees are either a flat amount or a percentage of the value involved. If one party is exempt, the whole fee is paid by the other party.

52. Reimbursement is made: if the fee paid exceeds the required amount; if the court or relevant office returns the application or refuses to accept it or complete the registration; if the court proceedings are stopped or the suit is not reviewed, or if the plaintiff has not complied with a prior order for resolving the dispute, or if filed by person not qualified to dispose of property; if a court decision is invalidated; if the amount claimed, on which fee has been paid, is adjusted; and in other situations determined by the government.

C. Exemptions

  • For court proceedings, plaintiffs in cases relating to labor remuneration, copyright, innovation or invention, alimony payments, or recovery of damages for bodily injury, other ailment or death.

  • Social security agencies in cases related to compensation or pension payments.

  • Plaintiffs and defendants in civil cases reviewed with criminal cases.

  • Plaintiffs and defendants in disputes over recovery of damages because of illegal arrest or security measures, administrative penalty, or conviction under criminal law.

  • Persons and legal entities for documents issued to them pertaining to criminal and alimony cases.

  • Plaintiffs and defendants in cases pertaining to property restitutions.

  • Internal affairs agency plaintiffs in cases related to collection of expenses for searching persons avoiding payments.

  • National Tax Board for submitting applications related to special court procedures.

  • Citizens for complaints related to errors in the electoral register.

  • Plaintiffs in cases related to collection of income derived from forests.

  • Prosecuting and governmental agencies, institutions, enterprises, organizations and persons in cases related to protection of individual rights.

  • State nature protection agency plaintiffs in cases related to recovering damages for polluting the environment and wasteful use of natural resources.

  • State Competition Department plaintiff in cases related to collecting unearned income and penalties from violating price regulations or failure to fulfill compulsory notices.

  • Bankruptcy trustee plaintiffs in cases related to recovery of assets under the Law of Bankruptcy.

  • For notary procedures performed by municipalities and towns (until November 1, 1995), persons issuing documents for compensations and state pensions, and cases related to tutelage, custody and adoption.

  • Public organizations, finance agencies and persons for issuance of certificates related to property inheritance.

  • Persons registering births, deaths, adoption, or paternity, where matters fall outside jurisdiction of registry offices; or divorcing missing person or who had been declared mentally incapable of deciding.

  • State cadastral registry office and government institutions for procedures pertaining to registering acquisition of real estate.

  • Procedures relating to relinquishing ownership of real estate, canceling groundless entry, and entry made on the basis of a court decision.

D. Tax Allocation

53. State fees accrue to the State budget. Institutions charging fees are controlled by their superior bodies and by the National Tax Board.

XIII. Customs duties

(Order of Levying Customs Duty, effective February 19, 1992)

54. A state fee of EEK 200 per customs declaration is levied.

55. Duties accrue to the state budget. The duties are administered by the National Customs Board.

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XIV. Taxes on natural resources

(Law on Environment Protection, effective 1993)

A. Tax Base

56. Individual taxes covering the. exploitation of minerals, building material, peat, oil shale and agricultural land forest, as well as use of water; a pollution tax for pollution of air, contamination of water, and storage of waste.

B. Exclusions

57. Land reserved for special purposes (e.g., educational, cultural or infrastructural purposes), sea water/waste water/fish breeding water.

C. Tax Rates

Minerals, building materials: 18 different minerals have been identified to which tax rates of EEK 0.10-EEK 3.80 per cubic meter are applicable.

Peat: Five different kinds have been identified to which tax rates of EEK 0.20-EEK 0.30 per metric ton are applied.

Oil shale: EEK 0.50 per metric ton.

Water: Surface water: EEK 0.01-0.02 per cubic meter; subsoil water: EEK 0.02-0.06 per cubic meter; mine water: EEK 0.05 per cubic meter.

Water pollution: Tax rates vary from EEK 150 per metric ton (sulfates) to EEK 4,200 per metric ton (phenols).

Waste storage: Tax rates vary from EEK 0.10-3,000 per metric ton.

Nonagricultural land compensation: Specific rates depending on the nature of land exploitation (e.g., sewer and communications systems, scientific and social/cultural infrastructure), location (in town center, suburbs or other areas of historical/cultural importance), and numbers of persons affected (in four categories from up to 50 persons to up to 500 persons). Where cultural/historical land is involved, rates range from EEK 20-EEK 1,000 per hectare; otherwise, the rates range from EEK 0.6-EEK 42 per hectare.

Agricultural land compensation: 75 specific rates ranging from EEK 122-EEK 114,031 per hectare.

Forest land compensation: Depending on the type of forests (moss bog, gran bog, wooded heaths and recultivated land, oil shale and other quarries, moldering bog, moor forests, pasture forests and recultivated land, peat bogs, sandy heaths, primeval forests and grove forests), specific rates are applied to two groups: Group I: EEK 940-EEK 6,310; Group II: EEK 6,300-EEK 4,210.

Pollution tax (EEK/metric ton): (1) Air pollution: sulfur dioxide: EEK 0.70; carbon monoxide: EEK 0.10; nontoxic dust: EEK 0.50; oil shale: EEK 0.70; grime: EEK 1.00; (2) Water pollution: tax rates vary from EEK 150 (sulfates) to EEK 4,200 (phenols).

D. Tax Allocation

58. Taxes on natural resources accrue to the state budget, except for the tax on water use, which accrues to the State and local budgets. Pollution tax accrues to the Environment Protection Fund.

XV. Local taxes

(Law on Local Taxes, in force October 24, 1994; effective January 1, 1995)

59. There are the following local taxes: poll tax, local income tax, sales tax, boat tax, commercial and advertisement tax, tax for closing roads and streets, motor vehicle tax, tax for keeping animals, and entertainment tax.

A. Poll Tax

60. Charged on inhabitants aged 18-65 of the municipality or town at rates determined by the relevant Council. The tax period is the calendar year. Active military personnel and disabled persons of Group I and II are exempt, as are others determined by the Council. If requested by the taxpayer, the employer is obliged to withhold 1/12 of the annual tax from the monthly salary of the tax payer and remit to the local authority. If tax is not withheld, at least 1/4 of the annual tax due must be paid quarterly.

B. Local Income Tax

61. Imposed on enterprises located in the municipality or town, whose income is subject to the Law on Income Tax. Non income-generating societies and associations are also liable. The taxable income is as for the Law on Income Tax. The local income tax may not exceed 2 percent of taxable income; or not exceed 0.4 percent of premiums for insurance companies. The taxation period is as for the national income tax. Taxes are paid by the due date for filing returns under the Law on Taxation and accrue to the budget of the relevant local government. Allowances and exemptions may be granted by the local Council.

C. Sales Tax

62. Paid by enterprises active or registered in the administrative territory of the municipality or town. Tax at a rate of no more than 1 percent is paid on the sale price of goods and services as determined under the Law on Value-added Tax. The taxation period is the calendar quarter. Allowances and exemptions may be granted by the local Council.

D. Boat Tax

63. Paid by the owners of boats, yachts and launches whose length does not exceed 12 meters. The period of taxation is the calendar year. Rates are determined by the local Council. Allowances and exemptions may be granted by the local Council.

E. Commercial and Advertisement Tax

64. Paid by persons and legal entities for commercials and advertisements displayed within the administrative area of the local government as well as those on public transport registered to persons or legal entities residing and located within the territory of the local government. Announcements of state and local government institutions and material related to candidates and parties during election campaigns are exempt. Rates and due date of payment are determined by the local Council Allowances and exemptions may be granted by the local Council.

F. Tax on Closing Roads and Streets

65. Paid by persons and legal entities in the case of organizing demonstrations, processions and other events, as well as construction work requiring the closure of roads, streets, squares, parks or recreation area. Rates and due date of payment are determined by the local Council.

G. Motor Vehicle Tax

66. Paid by persons and legal entities owning motor vehicles registered in the national register. Rates are related to engine capacity, tonnage, and number of seats. Vehicles of state and local government institutions, military and Defence League, of those enjoying diplomatic status, etc., and of disabled persons in Groups I and II are exempt. The period of taxation is the calendar year. The due date for payment is established by the local Council.

H. Tax on Keeping Animals

67. Paid by owners of animals the keeping of which is subject to tax within the territory of the municipality or town, as listed by the local Council. Animals kept for official duties by the police, army, frontier guards, Customs, Defence League, fire and rescue service are exempt. Animals kept within the territory of the local government for less than one month are exempt. The period of taxation is the calendar year. Rates and due date of payment are determined by the local Council. Allowances and exemptions may be granted by the local Council.

I. Entertainment Tax

68. Paid by organizers of paid recreational activities or owners of recreational establishments within the territory of the municipality or town. Tax is paid on tickets sold, tickets being subject to registration in the territory of the municipality or town. Rates and due date of payment are determined by the local Council. Allowances and exemptions may be granted by the local Council.

STATISTICAL APPENDIX

Table 16.

Estonia: Gross Domestic Product by Expenditure, 1993-96 1/

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Sources: Estonian authorities; and Fund staff estimates.

GDP data are subject to frequent restrospective revisions. The numbers reported reflect a consolidation of estimates of the Statistical Office of Estonia and Fund staff.

Table 17.

Estonia: Gross Domestic Product by Origin, 1993-96 1/

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Sources: Estonian authorities; and Fund staff estimates.

GDP data are subject to frequent restrospective revisions. The numbers reported reflect a consolidation of estimates of the Statistical Office of Estonia and Fund staff.

Table 18.

Estonia: Prices, 1993-97

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Sources: Estonian authorities; and Fund staff estimates.

Nonregulated, nontraded goods and services from January 1996.

Regulated, nontraded goods and services from January 1996.

Table 19.

Estonia: Average Monthly Wages, 1993-97

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Sources: Estonian authorities; and Fund staff estimates.

Nominal wages deflated by CPI.

Period average.

Table 20.

Estonia: Average Monthly Wages by Sector, 1993-96 1/

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Source: Estonian authorities.

Total average wages may differ from those in Table 19. The numbers here represent a consolidation of estimates of the Statistical Office of Estonia and the Bank of Estonia.

Table 21.

Estonia: Average Number of Employees per Month by Sector, 1993-96

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Source: Estonian authorities.
Table 22.

Estonia: Unemployment, 1993-97

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Sources: Estonian authorities; and Fund staff estimates.

The registered unemployed are defined in accordance with Estonian legislation as persons of working age (16 to pension age) who currently do not have a job, are actively seeking one, have been employed for at least 180 days during the previous 12 months, and have submitted all necessary registration documents. They are entitled to all benefits including unemployment insurance.

Unemployed job-seekers are defined as persons with no income, who are registered at the employment office, and who report to the employment office at least once a month. They have a right to information about vacancies, training and changes in labor market legislation, but do not have a right to unemployment insurance.

Period average.

Table 23.

Estonia: Summary of General Government Operations, 1993-97

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Sources: Estonian authorities; and Fund staff estimates.

Includes unallocated expenditure, some portion of government operations that may be net lending from domestic budgetary resources, and foreign-financed current expenditure.

Includes capital expenditure from both budgetary and foreign resources.

Includes the combined balance of the Environment and Forestry Funds in 1996 and the first half of 1997.

Table 24.

Estonia: General Government Revenue, 1993-97

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Sources: Estonian authorities; and Fund staff estimates.
Table 25.

Estonia: General Government Expenditure, 1993-97

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Sources: Estonian authorities; and Fund staff estimates.

Wages and salaries of a number of budgetary institutions are included under “other goods and services”.

Combined with income maintenance in 1997.

Includes unallocated expenditure, some portion of government operations that may be net lending from domestic budgetary resources, and foreign-financed current expenditure.

Includes capital expenditure from both budgetary and foreign resources.

Table 26.

Estonia: Monetary Authorities, 1993-97 1/

(In millions of kroons, end of period)

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Sources: Estonian authorities; and Fund staff estimates.

Comprises the Bank of Estonia and the External Financing Board.

Currency board cover is equivalent to the sum of base money and kroon liabilities of the Bank of Estonia in its correspondent accounts.

Table 27.

Estonia: Banking Survey, 1993-97

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Sources: Bank of Estonia; and Fund staff estimates.
Table 28.

Estonia: Consolidated Account for the Rest of the Banking System, 1993-97 1/

(In millions of kroons, end of period)

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Source: Bank of Estonia.

Comprises authorized banks, savings and loan associations, and the Estonian Investment Bank.

Table 29.

Estonia: Average Interest Rates of Kroon Deposits and Loans, 1993-97

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Source: Bank of Estonia.

Weighted average annual interest rates on deposits placed with commercial banks by individuals and companies. Calculation of demand deposit rates based on net deposit balances. Calculation of time deposit rates based on monthly turnover.

Weighted average annual interest rates on loans granted to individuals and companies by commercial banks.

From April 1997, changes in Bank of Estonia reporting requirements resulted in data for a different set of rates being available.

During 1997, there were occasions when no CDs were bought by banks and therefore no rate was set.

Table 30.

Estonia: Maturity Structure of Kroon Loans of Banking System, 1994-97 1/

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Source: Bank of Estonia.

Excludes interbank loans.

After April 1997, data refer to up to 3 months.

Table 31.

Estonia: Maturity Structure of Foreign Currency Loans of Banking System, 1995-97 1/

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Source: Bank of Estonia.

Data are for loans issued during the month.

From 1996, separate data are not available for “loans up to 1 month”.

Table 32.

Estonia: Nonperforming Loans of Commercial Banks, 1993-97

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Source: Bank of Estonia.

From April 1997, this category refers to 30-60 days overdue.

From April 1997, this category refers to over 60 days overdue.

Table 33.

Estonia: Balance of Payments, 1993-97

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Sources: Estonian authorities; and Fund staff estimates.

The Bank of Estonia is in the process of revising balance of payments data to exclude transit trade. These revisions indicate that the current account deficit was about 9.5 percent of GDP in 1996 and just under 10 percent in the first half of 1997. The staff has been working closely with the authorities and final data on the revised balance of payments should be available in early 1998.

Includes interest income, and from 1997, reinvested profits. The latter are excluded as a debit item in the current account with the counterpart being a net credit for foreign direct investment in the capital account (based on latest change in balance of payments methodology).

Table 34.

Estonia: Direction of Trade-Exports, 1993-97

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Source: Bank of Estonia.
Table 35.

Estonia: Direction of Trade-Imports, 1993-97

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Source: Bank of Estonia.
Table 36.

Estonia: Trade by Commodity, 1993-97

(In millions of kroons)

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Source: Bank of Estonia.

Includes animal and vegetable products, prepared foodstuffs, beverages, spirits, and tobacco.

Includes base metals, precious metals and related articles.

Table 37.

Estonia: Foreign Direct Investment (Net) by Sector, 1994-96

(In percent of total)

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Source: Bank of Estonia.
Table 38.

Estonia: Foreign Direct Investment (Net) by Country, 1994-96

(In percent of total)

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Source: Bank of Estonia.
Table 39.

Estonia: Composition of Net Capital Flows, 1993-97

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Sources: Bank of Estonia; and Fund staff estimates.

Maturity exceeds one year.

With maturity up to one year.
58

Measuring competitiveness is a complex issue, particularly in transition economies undergoing structural changes. In this note, we have chosen two relatively simple indicators to examine the underlying trend in Estonia’s competitiveness.

59

The rapid appreciation of the U.S. dollar vis-à-vis the deutsche mark—and thus the Estonian kroon which is pegged to the DM—complicates the interpretation of balance of payments developments in 1996, However, the relative stability of the DM with respect to the other currencies of the European Union (which represents an increasing share of Estonia’s trade) transfers significant benefits to Estonia and will continue to do so following EMU.

1

This summary reflects comments from the Ministry of Finance.

2

Provisions for taxing interest paid to resident persons by credit institutions became effective on January 1, 1995.

3

The enterprise or employer pays income tax on the price of fringe benefits provided; for persons, fringe benefits are tax-free.

4

The list of these organizations is confirmed by the Government.

5

Prior to this date, first and second quarter payments were equal to 1/9 of the income tax calculated in the income tax return for the first 9 months of the previous period of taxation; third and fourth quarter payments were equal to 1/12 of the income tax calculated in the annual tax return for the previous period of taxation.

6

Transactions include sales, exchanges, disposal of assets, consumption by person liable for VAT, letting, hiring or leasing.

7

This is either the selling price for goods and services; the “fair market price” (excluding VAT) for goods exchanged without full payment; or the customs value for imported goods. Also, the National Tax Board may determine the fair market price to be the taxable value if it establishes that the reported taxable value is less than the “fair market price”.

8

Until June 30, 1998, the rate of VAT charged on thermal energy sold to the public, churches and institutions financed by the state and local budgets is zero. Until June 30, 1998, the VAT rate charged on peat, briquettes, coal and firewood sold to the public is zero.

9

These budgets are adopted by parliament at the same time as the state budget.

10

The Minster of Finance may raise excise tax rates, whenever he desires, according to changes in the Consumer Price Index.

11

Excise on fur sales became invalid from January 1, 1996.

12

Replaced the previous law which had been in effect since August 1, 1992.

13

Excluding the amounts that persons are allowed to import duty-free.

14

For cigarettes, cigarillos, and Russian cigarettes rate of EEK applies to a package up to 20 pieces; a package containing 21-40 cigarettes or cigarillos carries two revenue stamps (EEK 6), etc. For cigars, rate of EEK 3 applies to one cigar. For smoking tobacco, snuff, chewing tobacco and other tobacco products, rate of EEK 3 applies to up to 50 grams of the product; a package containing 51-100 grams is marked with two stamps (EEK 6), etc.

15

As of December 1, 1996.

Same Series

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Cover IMF Staff Country Reports
Republic of Estonia: Selected Issues and Statistical Appendix
Author:
International Monetary Fund
Volume/Issue:
Volume 1998: Issue 012
Publisher:
International Monetary Fund
ISBN:
9781451812329
ISSN:
1934-7685
Pages:
108
DOI:
https://doi.org/10.5089/9781451812329.002
Figure 3.

Estonia: Real Effective Exchange Rate, 1994-97 1/
Figure 4.

Estonia: Competitiveness Indicators, 1994-97 1/