Finnish Government Announces Tax Reform Proposals

by Ulrika Lomas, Tax-News.com, Brussels

12 March 2009

The Finnish government, in its mid-term policy review, has provided insight into its proposed wide-scale reform of the nation’s tax system, outlining both short- and long-term fiscal measures which will be introduced in order to balance the country's books.

In its mid-term policy review the government has announced measures to ‘ensure adequate tax revenues, curb expenditure growth and guarantee a sound financial base for municipal services’. To this end the government will introduce the following measures in the short-term:

• An increase in taxation on alcohol;
• Changes to the minimum and maximum real estate tax rates at municipal level;
• Undertake an intensified effort to combat the shadow economy and financial crime, in part by increasing the capabilities of the police, prosecution service, courts and tax authorities; and
• Look into the possibility of introducing a reverse Value Added Tax (VAT) system in the construction sector.

The government has also hinted at areas where tax reform will take place in the long-term. Amongst the government's plans, SMEs investing in innovation will receive larger government subsidies and a system for tax concessions on research and development expenditure will be explored. Operating conditions for growth-driven companies will also be improved. The taxation of equity investments will also be made more competitive by the start of 2010.

In view of Finland’s ageing population, the government will also introduce a wide-scale reform of both the pension and education system in order to increase income tax receipts and increase the number of taxpayers through boosting employment levels. The government aims to do this by the lengthening the duration of Finnish taxpayers' working lives and enhancing employment opportunities through improved fiscal incentives and training initiatives.

According to the government release, this will be achieved firstly by lowering the age at which studies are started and accelerating graduation. The reform will substantially reduce the average age of entry to the labour market of young graduates. At the other end of the scale the government will encourage older workers to retire later by increasing the retirement age and offering incentives for those who remain in work.

The main points of the reform will be as follows:

• The minimum age of eligibility for old-age pensions will be raised in stages by two years over a twelve-year transition period starting in 2011;
• The minimum age of eligibility for group pension insurance payouts will be raised as swiftly as possible from 60 to 65;
• The minimum age of eligibility for individual pension plan payouts will be raised as swiftly as possible from 62 to 65.

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