Estonia's VAT rate rises to 24 percent from July 1
As of Tuesday, the value-added tax on all goods and services has risen from 22 percent to 24 percent. Shoppers are feeling the impact most acutely in grocery stores, where prices have already seen significant increases this year and sales volumes have declined. In addition, the excise duty on gasoline is rising by 5 percent.
According to LHV economic analyst Triinu Tapver, the tax increase will most strongly affect food prices, as the sector has not shown strong performance so far.
The VAT hike will also accelerate inflation. On average, prices in stores are expected to rise by about 1.6 percent, but experience shows that price increases tend to exceed projections. For instance, LHV Bank is forecasting annual inflation of 6 percent.
According to the Bank of Estonia, the biggest concern for the Estonian economy remains the persistently rapid rise in prices, which the central bank expects to reach 5.4 percent this year.
"If we consider the biggest challenge facing the Estonian economy, it's the rapidly rising price level — about 5.5 percent this year. The main drivers of price increases are rising food costs, and we must also mention tax hikes. The mid-summer VAT increase will once again accelerate inflation," Bank of Estonia economist Rasmus Kattai told ERR in June.
The VAT increase was decided last year by the coalition government of the Reform Party, Eesti 200 and the Social Democrats as part of a broader so-called national defense tax package. According to forecasts from the Ministry of Finance, the measure is expected to bring in nearly €2.5 billion in additional tax revenue by the end of 2028.
Based on the ministry's calculations from last year, the 2-percentage-point VAT hike will bring €113 million into the state treasury in 2025, €235 million in 2026, €242 million in 2027 and €252 million in 2028.
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Editor: Margitta Otsmaa, Mirjam Mäekivi, Marcus Turovski
