I think that what you ought to do is to raise the social security tax enough to compensate the loss of income realted to the introduction of a 0% income tax.

Of course one might ask oneself if there is a point in lowering one tax if another one is raised. I think so and please let me explain why.

The estonian income tax is de facto progressive due to the fact that there is an allowance not subject to any income tax at all. Only income in excess of that sum is subject to taxation and the result is a de facto progressive tax rate.

Another weakness of the Estonian tax code is that there is a capital gains tax. In Hong Kong there is no capital gains tax at all and I believe that this is the reason for the enormous turnover of the Hong Kong Stock Exchange.

If Estonia would abolish the income tax altogether both those weaknesses would be eliminated and I think that justifies a higher social security tax.

On top of that I believe that a 0% flat rate would attract more companies to invest in Estonia with the result that fiscal revenue would increase and allow a future reduction of the social security tax and perhaps also open up an opportunity to reduce the VAT to 15%.

With a 15% VAT Estonia could become a centre for the trade with used cars which also could generate enormous revenues.

Best,
George

Do you think it would be possible to abolish the income tax altogether in Estonia?

The biggest sources of income for the estonian government are VAT and social security tax. The income tax is only a minor part of total revenue, and why not reduce it to 0%?

Estonia would become a magnet for business, I am sure.

best regards

Flavian, Sweden

There is a easy answer. Just compare the countries in the same region – Central Eastern Europe by example – who have done similar market orientated reforms – but from which some are having flat tax and others not – and You see very different results. The other possibility is to look on growth rate of countries before and after flat tax. Evidence is very clear – I am just finishing study on this.

I 100% for a low flat tax reforms. Such reforms enhance the freedom of the cevilians. I’m also belives that these reforms are “economic boosters”. But what would you answer to those who claim that all of the performances of the implementing European countries are due to the market reforms and other changes and not due to the flat tax.

Shahar