Estonian ex-Minister: time to change the tax system?

27.01.2014, 13:13

Former Finance Minister and head of the tax authority, Aivar Sõerd, says that the situation where banks in Estonia continue to rake in huge profits while paying no income tax is unbearable and must be changed, writes Postimees.

MP Sõerd says that the idea of the Estonian income tax system is that companies are freed from paying corporate income tax when they re-invest their profit.

„But I have not seen that banks are making any significant investments,” he adds.

Estonian subsidiaries of Swedbank and SEB are generating considerable profit also in the group: in 2012, Swedbank Estonia’s profit made up 15% of the Swedbank Group profit, while for SEB it was 5%.

While the large four have not paid any dividends in Estonia recently, their mother banks in the other side of the Baltic Sea do so. Since 2010, Swedbank and SEB Groups have paid growing dividends to shareholders. Nordea Bank’s parent has been paying dividends since 2000.

While Sõerd has offered that banks could pay voluntary income tax in Estonia, current law says that such tax prepayments would be deposited in the company’s tax account and the company is able to reclaim it at any time.

So banks are happy to earn profits in Estonia, but not so happy to be socially responsible.

Sõerd also mentioned an interesting example from UK when last year British PM David Cameron criticised US coffee chain Starbucks that did everything to avoid paying tax. By the way, Cameron did not mention Starbucks but said that there is a certain coffee chain.

The initiative caught on in social networks with people declaring that they will be boycotting Starbucks. The result: the company sensed the threat and decided to voluntarily pay tax in advance.

According to critics, Sõerd’s proposal may be noble, but it would probably fall on deaf ears. Although any bank manager in Estonia who says that his bank will pay voluntary tax is probably sacked within minutes, it stirs up an important issue: is it time to change the Estonian tax system?