Estonia tax code is the most competitive in the world

According to research by Tax Foundation, a Washington, U.S. based tax policy research organization, Estonia’s tax code is the best among Organization for Economic Cooperation and Development (OECD) member states with Latvia’s in second place.

The data supporting this is presented in the 2018 International Tax Competitiveness Index which seeks to measure the extent to which a country’s tax system adheres to two important aspects of tax policy: competitiveness and neutrality.

A competitive tax code is one that keeps marginal tax rates low. A neutral tax code is one that seeks to raise the most revenue with the fewest economic distortions.

“A tax code that is competitive and neutral promotes sustainable economic growth and investment while raising sufficient revenue for government priorities,” say the authors of the report.

Rounding out the top-ten in the 2018 ITCI are (in descending order): Latvia (2nd), New Zealand, Luxembourg, the Netherlands, Switzerland, Sweden, Australia, the Czech Republic, and Austria (10th).

“While Estonia’s tax system is the most competitive in the OECD, the other top countries’ tax systems receive high scores due to excellence in one or more of the major tax categories. Latvia, which recently adopted the Estonian system for corporate taxation, also has a relatively efficient system for taxing labor,” note the authors.

Estonia retained top spot by instituting changes to its VAT and individual income tax. The threshold for the VAT was increased by 8.5 percent, from $28,571 to $31,020.

Established in 1937, the Tax Foundation is a tax policy research organisation which has stated that its research is guided by the principles of sound tax policy: simplicity, transparency, neutrality, and stability.