In September, tax revenues were €43 million lower than budgeted. While total tax revenues amounted to €1.068 billion in September 2023, they rose to €1.16 billion in September 2024.

Starting in January next year, the income tax rate will increase from 20 percent to 22 percent, along with a rise in the advance tax rate for companies and banks. This has motivated some businesses and individuals to pay taxes early this year.

According to Marek Rozov, deputy director of the Estonian Tax and Customs Board, this behavior is logical; with the income tax rate increasing, it makes sense to pay taxes on profits sooner.

Legal entities have paid 31.6 percent more in income tax compared to the same period last year, a development that Riigikogu Finance Committee member Aivar Sõerd (Reform) considers expected.

"I can already draw a conclusion based on nine months of corporate income tax revenue that, since the tax burden on dividends is lower this year compared to the future, individuals and companies are taking this into account in their decision-making," Sõerd said.

The higher collection of income and social taxes is driven by wage growth rather than an increase in the number of employed people. In September, there were 5,100 fewer jobs compared to the same period last year. However, some sectors experienced notable employment growth, such as healthcare, which added 1,653 jobs and education, which saw an increase of 597 jobs over the past year.

Healthcare workers also had the steepest annual wage growth, with their wage bill increasing by 16 percent over the year.

In contrast, the manufacturing sector saw a decrease of 3,640 jobs and construction lost 1,849 jobs. Wages in manufacturing rose by 0.9 percent, while in construction, they declined by 0.3 percent.

Value-added tax (VAT) revenue increased by nearly 12 percent, primarily due to a hike in the VAT rate from 20 percent to 22 percent. The Ministry of Finance acknowledges that consumer confidence remains weak, leading to cautious spending. Consumption remains in decline when adjusted for constant prices, and corporate VAT debts have risen by 5 percent over the year.

Will cross-border alcohol trade pick up again?

At the beginning of the year, low alcohol excise tax revenue was linked to the sale of older stockpiles, as wholesalers stocked up on alcohol last year ahead of an excise increase in 2024. In early 2024, this led to a 33 percent drop in revenues and in September, alcohol excise receipts were still 11 percent lower than in September 2023.

"The risk of cross-border trade is increasing, even though the Ministry of Finance states there have been no changes in the dynamics of border crossings. However, border crossings do not reflect the volume of goods being purchased; revenue remains below projections. This raises the question of whether next year's increase in excise duties on strong alcohol is justified. There are very significant risks here," said Aivar Sõerd.

Meanwhile, Latvia will also raise its alcohol excise duties starting next year. Sõerd pointed out that since Latvia is increasing its excise rates from a lower base, absolute price increases will be higher in Estonia.

This could further motivate cross-border shopping trips, where consumers not only buy alcohol but also other goods, leaving Estonian retailers with diminished sales.

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