Finland Confirms VAT Hike

by Ulrika Lomas, Tax-News.com, Brussels

05 April 2010

It has recently emerged that the Finnish government has agreed to a supplementary budget proposal for 2010 containing a number of tax initiatives.

Finland’s government has confirmed plans to increase the standard value-added tax (VAT) rate by 1% to 23% from July 1. However, the VAT rate for restaurants will be reduced from 22% to 13%, bringing it more into line with foodstuffs, which attract VAT at 12%. These measures are expected to boost revenues from VAT by 4.5%.

It has also unveiled plans to introduce an excise duty on certain confectionery in 2011, and to increase the excise duty on soft drinks. These measures are expected to increase tax revenue by a total of EUR100m annually. Receipts from excise duties are also expected to increase by an annual average of 5%, peaking in 2011 when taxes on energy will be raised by around EUR750m.

Other measures contained in the supplementary budget include plans to increase the tax levied on lottery proceeds to 10% from the beginning of 2011, thereby generating an additional EUR10m.

In its statement, the government notes that the recent recession will have an impact on the country’s public finances for a number of years to come, with the deficit projected to deepen to 4% of gross domestic product, thus exceeding the 3% budget deficit ceiling imposed by the European Union’s Stability and Growth Pact.

According to the government statement: “In 2010, with employment prospects being bleak and the base in local government tax revenue deteriorating as a result, the crisis will spread to the whole of the local government sector. Recovery will be slow, as tax revenues will be weak in 2011 too. Unless municipalities significantly curtail expenditure growth on a permanent basis, local government is set to remain on a path of expanding tax rates and mounting debt burdens.”

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