Proposal designed to thwart tax cheats

The Baltic Times, TALLINN
Sep 23, 1999
By Kairi Kurm

Keeping a company car will become more costly on Jan. 1 if  a bill proposed by the Finance Ministry becomes law.

The ministry wants to tax those who lease corporate cars at 18 percent. Currently, those who lease a car for a given period only pay the 18 percent tax if they opt to buy when their lease runs out. But  in this case, they pay tax on a car whose value has depreciated.

Those who buy and then finance a car pay the full 18 percent tax up front on the sticker price of the new car.

The ministry is proposing adding an 18 percent tax to each lease payment in order to level the playing field. The current system, says ministry adviser Terko Jakobson, promotes tax cheating and is depriving the state coffers of much-needed revenue.

The ministry has complained because too many Estonians who would otherwise not be able to afford a new car are going the lease route first, then buying the car. Thus, they save a considerable amount on taxes.

“We have to make a compromise between these two unfair [situations]. It is not possible to make everyone a winner,” he said.

Jakobson says it is likely the bill will be approved by the Parliament. But Reet Haal, head of the Estonian Leasing Association, said the government is either trying to make the life of entrepreneurs hard or fill the budget gap caused by the recently abolished corporate tax.

“I believe the government has not done proper analyses on how much loss it generates from cheating and how much the enterprises will lose with the new amendments,” said Haal.

Haal said almost 30 percent of the portfolio of leasing companies is related to vehicles. The size of the leasing portfolios in 1998 was 2 billion kroons ($132 million). At present, the operating lease makes about 85 percent and the finance lease about 15 percent of the portfolio. Haal did not want to predict a new share for the future because she hoped that the bill would not pass through.

“What is the entrepreneur punished for? Is he punished for the government’s inability to control cheating?” said Haal.

Mati Annus, head of the Avis rental company, said the new bill might creates two difficult situations.

“The companies may start renting cars, as VAT is recovered from rent, or establish a company of its own for maintaining its cars,” said Annus.

Although renting is usually more expensive than using an operating lease, Annus said the prices of longer renting periods are quite acceptable.

Hansa Capital told Eesti Paevaleht that Estonia should prepare for a decline in the leasing business should the proposal become law.