New Government of Estonia Plans to Raise VAT to 24%

Estonia's newly formed government has unveiled a strategic plan to tackle inflation by implementing various tax increases. Value-added tax (VAT), income tax, and excise duties on alcohol, tobacco, and gasoline, will all see an upward adjustment as part of the government’s primary policy agenda.

According to the plans VAT and income tax rates will each be raised by two percentage points, increasing them to 24%. These changes will take effect in July 2025 and early 2026, respectively. In addition, a temporary corporate income tax, referred to as the "defense tax," will be introduced at a rate of 2% starting in early 2026 and will remain in place until the end of 2028.

Excise duties on alcohol, tobacco, and gasoline will increase by 5% annually. Additionally, the elimination of the income tax-free threshold, known as the "tax hump," originally set for 2025, will be postponed by one year.

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