Estonian social tax, or the national insurance contribution, is paid by all workers – including those who are self-employed – to provide social security [1] benefits to unemployed, sick and disabled people and other groups who are unable to work, as well as retirement pensions. According to the Social Tax Act (Sotsiaalmaksuseadus [2]), the tax level is 33% of wages, which is mostly paid by the employee. A self-employed person [3] pays 33% of earnings received from entrepreneurial income, but not less than the monthly rate prescribed by law. At the moment, the minimum income basis for calculating the tax is EEK 1,400 (€90), which means that the minimum monthly payment is at least a third of that amount, or EEK 462 (€30).[1] www.eurofound.europa.eu/ef/observatories/eurwork/industrial-relations-dictionary/social-security[2] http://www.legaltext.ee/et/andmebaas/document.asp?tyyp=SITE_X&ptyyp=I&query=sotsiaalmaksu seadus&display=1[3] www.eurofound.europa.eu/ef/observatories/eurwork/industrial-relations-dictionary/self-employed-person
From 2007, the Ministry of Social Affairs plans to double the minimum rate of social tax for self-employed people. This move is seen as a means of decreasing the budgetary deficit of the Estonian health insurance fund, and also of bringing the social insurance contributions of self-employed people closer to the level paid by salaried workers.
Estonian social tax
Estonian social tax, or the national insurance contribution, is paid by all workers – including those who are self-employed – to provide social security benefits to unemployed, sick and disabled people and other groups who are unable to work, as well as retirement pensions. According to the Social Tax Act ([Sotsiaalmaksuseadus](http://www.legaltext.ee/et/andmebaas/document.asp?tyyp=SITE_X&ptyyp=I&query=sotsiaalmaksu seadus&display=1)), the tax level is 33% of wages, which is mostly paid by the employee. A self-employed person pays 33% of earnings received from entrepreneurial income, but not less than the monthly rate prescribed by law. At the moment, the minimum income basis for calculating the tax is EEK 1,400 (€90), which means that the minimum monthly payment is at least a third of that amount, or EEK 462 (€30).
Increase in minimum monthly rate
According to a plan issued by the Ministry of Social Affairs, the minimum monthly rate for self-employed people will double from 1 January 2007. This follows a previous increase in January 2006 and there is another increase planned for 2008. Next year, self-employed people will have to pay at least EEK 905 (€58) per month and this will increase to almost EEK 1,300 (€81) in 2008. This shows a steep rise in the tax burden of those who are self-employed.
Figure 1: Minimum monthly social tax for self-employed people (in €)
* Minimum rates for 2007 and 2008 have not been ratified yet
Source: Estonian Tax and Customs Board, Government
Funding the health insurance fund
The main reason for the increase in the minimum tax rate is the deficit in the budget of the Estonian health insurance fund (Eesti Haigekassa), which manages health insurance in Estonia. In 2005, it was forecast that the budgetary deficit would be around EEK 400 million (€25.5 million) (EE0509102F).
The Estonian Employers’ Confederation (Eesti Tööandjate Keskliit, ETTK) argued that self-employed people have contributed less to social insurance than employees have, as the amount paid from the minimum wage is much higher than taxes paid from the minimum basis of calculation for those who are self-employed. Although self-employed workers form 10% of all tax payers, they contribute only 1.1% of social tax. At the same time, self-employed people are eligible for the same insurance and services as other employees. ETTK suggested revising the social tax system of self-employed people in order to solve the budgetary problems of the health insurance fund and create a fairer taxation system. The Confederation of Estonian Trade Unions (Eesti Ametiühingute Keskliit, EAKL) supported the proposal to increase the minimum rate of social tax.
Minimising tax burden through self-employment
According to the Estonian Tax and Customs Board (Maksu- ja Tolliamet), in 2004 there were approximately 50,000 self-employed persons whose main activity was of an entrepreneurial nature and who did not receive income from employment or a retirement pension. Half of those people earned only EEK 1,000 (€64) per month, which was two to three times less than the minimum wage. When discussions about the social tax of self-employed people began, ETTK suggested that many people register as self-employed in order to minimise their taxes.
Increasing the tax level would force people who are registered as self-employed, but who are not really active as entrepreneurs, to find other ways of optimising their taxes. It is, thus, hoped that a clearer picture of entrepreneurship in Estonia will emerge, with the registers including only people who are genuinely active as entrepreneurs.
Marre Karu and Liis Roosaar, Praxis Centre for Policy Studies
Eurofound priporoča, da to publikacijo navedete na naslednji način.
Eurofound (2006), Increase in tax rate of the self-employed, article.
