Minister of Economic Affairs and Industry Erkki Keldo said land valuation and land tax must be clearly distinguished, after Postimees reported Thursday that Estonian property owners could face a sharp increase in land tax following this year's regular land valuation.

Estonia is carrying out a regular land valuation this year, with the Land and Spatial Development Board assessing approximately 770,000 cadastral units. The results are due by the end of October and the new land values will be used for calculating land tax starting in 2028.

Postimees reported that although the board says the valuation is still underway and final figures are unavailable, a draft regulation signed by Keldo on August 4 provides estimates of how land values could change.

According to the draft, taxable land values in various categories could generally rise by around 25 to 33 percent, while increases of around 40 percent are expected in some parts of Tartu. Under the building rights valuation model, which covers around 11,000 cadastral units in Tallinn and 3,000 in Tartu, taxable land values are estimated to increase from a combined €7.5 billion to €9.6 billion.

"I would immediately allay any fears about land tax — people should not worry that land tax is somehow going to increase enormously," Keldo said.

Keldo stressed that an increase in the assessed value of land does not automatically result in an equivalent increase in land tax.

"Two things really need to be distinguished here: One is the regular valuation of land, and the other is land tax, which by law is essentially a local government tax," he said.

The Land and Spatial Development Board determines land values based on factors including transactions, location and designated land use. Keldo said the valuation process is still underway and no definitive conclusions can be drawn until it is completed.

"Neither the Ministry of Economic Affairs nor the Land and Spatial Development Board raises the price of land or sets land tax," Keldo said. "Land tax is another, completely separate matter. Land tax is entirely up to the local government: what percentage of the land's value it charges, or whether it charges anything at all."

Local government councils set land tax rates and can also determine annual caps on increases and provide tax breaks within the limits established by law.

Keldo cited Saue Municipality, which introduced a €1,000 land tax exemption for registered residents, as an example of the discretion municipalities have in setting tax policy.

Many municipalities facing financial difficulties, however, have not introduced such exemptions. Several municipalities in southeastern Estonia and Ida-Viru County have instead raised land taxes to ease budget shortfalls.

Keldo said he supports giving municipalities autonomy over the tax because all land tax revenue goes to local governments and is used to fund local services and infrastructure.

"Land tax really is a unique tax — it is collected by the state, but all of the revenue goes to the local government and the local government sets the rates," he said.

The rules governing land tax increases have changed in recent years. Following an earlier revaluation, annual increases were initially capped at 10 percent. The government subsequently allowed increases of up to 50 percent in 2025, while municipalities can now set annual increase caps within limits established by law.

Keldo said regular land valuations were introduced into law in 2022 after more than two decades without them, both to provide up-to-date information about land values and to prevent valuation from becoming a recurring political dispute.

"I would remind you that the price and value of land, including land taxation, is a very sensitive issue," Keldo said. "At the time, we had a situation where, for 21 years, no political party or government wanted to deal with the issue."

The new assessed land values will take effect for tax purposes in 2028. Keldo said each municipality and its council will then have to decide whether and by how much to raise land taxes, as well as what tax breaks to provide.

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