MPs approve plan to increase VAT rate to 20 pct

18.06.2009, 10:28

MPs voted yesterday evening to increase VAT rate from the current 18 percent to 20 percent, writes Äripäev.

In the second reading, 54 MPs were in favour with 43 against.

The third reading that is expected also to approve the raise in the excise duties of fuel and alcohol and cut sickness benefits will take place today.

According to the government, the 2 pct raise of VAT rate will bring 800 million kroons extra into the budget revenues.

Opposition has said that raising a VAT rate would sharply push up price consumer goods and make Estonia more similar to Latvia.

Vilja Savisaar from Centre Party who is chairman of the party’s faction in the Parliament has said that the government was paying little attention to what happened in Latvia in a similar situation.

Savisaar said that there was no doubt that a VAT rate raise would push up price of consumer goods.

„I cannot imagine what is the benefit of increasing the price of bread and milk during an economic crisis. It will not create any jobs nor help us overcome this economic crisis sooner. This would be a bad decision for them who earn less than Estonia’s average wages. At the same time it woudl be good news for high-earners since primary goods make up a smaller part of their daily purchases,” said Savisaar.

„Latvia’s problems started when it decided to increase its VAT rate. The results were dismal – tax revenues fell sharply. Estonia todady is still in a better position than Latvia. For me it is a strange why Ansip wants to make us more similar to Latvia,” she said.