Nr. 12-2011 Published monthly by:
The Swedish Chamber of Commerce
in Estonia

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Taxes, education, labor and business ethics In a recent interview at ERR – Estonian Public Broadcasting News, FICE – the Foreign Investors' Council in Estonia outlines its points of view on Estonian taxes, education, labor and business ethics.

FICE is a lobby group acting on behalf of the Austrian, British, Danish, Finnish, German-Baltic, Holland, Norwegian and Swedish Chambers of Commerce, Business Clubs and Marketing Offices in Estonia. Together, the eight countries represented in FICE account for more than 80 % of the total foreign direct investments in Estonia.

Interviewed by Scott Diel, FICE was represented by its current Chairman Martin Breuer.

Taxes - First of all we want to stress how important the simple taxation system in Estonia is. A simple tax makes things transparent, creates a level playing field, and avoids huge costs on the government side in tax collection and on the company side with money spent on tax avoidance.

- However we want to cap the social tax at a reasonable level where the payment and rewards are both capped. You could only pay so much, and also you could only claim so much in rewards.

- We are absolutely against a progressive income tax. The flat tax is one of the most attractive things about Estonia. As a small country, Estonia has to differentiate itself and create a niche with a unique and simple proposition. The flat tax is attractive not only for foreign investors, but economic growth is needed which will have to come from foreign direct investment into feasible businesses.

- The simplicity of the Estonian tax system also means that many things are not deductible. But definitely, education in any form should be considered as a company expense and should never be taxed. And there are still educational programs which are taxable. In modern society where the demand is for continuous education and jobs change fast, we can't be stingy with education.

Education and labor - Many of our chambers' members are looking for improvement of education at vocational schools. For some reason in Estonia we focus too much on academic education, maybe because we associate that with money, success, or status. But in any country, 80 percent of the labor force will not have university educations but rather do things with both hands and brains.

- We think that the focus is off balance in Estonia and that many young people undervalue the potential that lies ahead for them within a system of good vocational training.

- Our members are already seeing a shortage on the supply side of the labor market. Estonia's employable work force of roughly 600,000 cannot be seen as one. One worker cannot necessarily replace another worker. It might sound ridiculous to talk about a labor shortage when you have 18 percent unemployment. But we should understand that this figure is marked by a large group of people who in the past chose not to pursue further education, but rather stepped into construction or other unsustainable easy money jobs that were available in the boom period. Now that we're back with our feet on the ground, the market cannot currently solve the demand for the type of labor our members need.

Business ethics - In a recession, companies that are put under stress might be seduced to cut corners or to move partly into the black economy.

- One of the issues we have been discussing with politicians is the fact that it was nearly considered to be a normal business practice to operate a company and run large debts with the tax authority - not paying taxes for a period of years - then to bankrupt the company, and to restart the operation in a new vehicle leaving behind the tax debt.

- Fortunately, the government has seen that there is such a thing as timely tax collection. Unfortunately, business ethics are not necessarily ingrained in our society – yet - and this is why it's an important issue.

The full interview is available online at http://news.err.ee.

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