Finland's Finance Minister: Extend VAT Cut To Restaurants

by Ulrika Lomas, Tax-News.com, Brussels

19 August 2009

Finland’s Minister of Finance, Jyrki Katainen, suggested that a planned reduction in value-added tax on food products should be extended to restaurant meals.

The government has said it will reduce VAT on food products from 17% to 12%. But Katainen believes that restaurants, which are subject to a 22% VAT rate, will be hit by the change if VAT on restaurant meals is not also reduced. He has suggested instead that the tax on both food products and restaurant meals be dropped to 14%.

Katainen has estimated that the cost of his proposed changes would be around EUR530m – about the same as that for reducing VAT to 12% on food products only – and could create some 8,000 new jobs.

The proposals have been rejected by Sirkka-Liisa Anttila, Agriculture and Forestry Minister, and by Timo Kalli, Chair of the Centre Party. Anttila said that the reduction of VAT on food products by 5% would be enough to be truly felt by consumers, while Kalli said the decision had already been made and would not be reversed. However, Prime Minister Matti Vanhanen has since indicated that he would consider lowering VAT on restaurant meals to 12%, although he would not elaborate on how this could be paid for; he insisted, though, that the VAT reduction to 12% on food products would proceed as planned.

There are currently fears in Finland of a deflationary spiral caused by falling consumer prices, which could kill economic growth. The reduction in food product prices from October, when the VAT reduction takes effect, should however be offset by a rise in alcohol duty.

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