Estonia’s newly established government has announced a comprehensive strategy to combat inflation, featuring a series of tax increases across multiple sectors. As part of this plan, value-added tax (VAT), income tax, and excise duties on alcohol, tobacco, and gasoline will all see significant hikes.
Under the new policy, VAT and income tax rates will each rise by two percentage points, reaching 24%. The VAT increase will take effect in July 2025, with the income tax hike following in early 2026. Additionally, the government will introduce a temporary 2% corporate income tax, dubbed the “defence tax,” beginning in early 2026. This tax is slated to remain in effect until the end of 2028.
A 10% reduction in labour, management, operating costs, and subsidies over the next three years
Excise duties on alcohol, tobacco, and gasoline are set to increase by 5% annually. Moreover, the planned elimination of the income tax-free threshold, known as the “tax hump,” originally scheduled for 2025, will be delayed by one year to 2026.
Kristen Michal, the prime ministerial candidate, announced on Friday that the government intends to sell various assets and privatise non-essential companies. According to the coalition agreement, the government elected after the 2027 Riigikogu (Parliament of Estonia) elections will determine whether to continue or modify this tax policy.
